SIBOR spike fuelled by intensifying SGD depreciation fears

Interbank rates have risen by 60bps.

Fears of the SGD’s depreciation against the greenback are driving local interbank rates steadily higher, a report by UBS noted.

Local interbank rates have increased by 60 basis points to 1.0% since late 2014, pushing the SIBOR to its highest level in over six years.

“What has fundamentally changed in Singapore, which drives the recent rise in SIBOR ahead of the change in Fed policy, is in our view the shift in expectation for the SGD from appreciation to depreciation," UBS stated.

"Falling inflation, weakening growth, and the unscheduled meeting by the MAS on January 28 to lower the pace of SGD appreciation are the key catalysts that herald a shift in SGD expectations and therefore funds flows. Once expectations start to shift, Singapore's experience serves as an important reminder that domestic interest rates could move earlier and faster than expected,” the report added.