BT : Tightening of Singdollar a boon for property buyers

Business Times - 16 Apr 2010

Tightening of Singdollar a boon for property buyers

Move draws capital inflows, lowering interest rates

By SIOW LI SEN

(SINGAPORE) Property buyers are in a sweet spot, following the tightening of the Singapore dollar which attracts capital inflows causing interest rates to fall.

The key three-month Sibor (Singapore interbank offered rate) fell to 0.64583 per cent yesterday from 0.65625 per cent on Wednesday after the Monetary Authority of Singapore (MAS) appreciated the local unit to stem inflationary pressures. The government has revised upwards economic growth to 7-9 per cent from 4.5-6.5 per cent. It also raised its 2010 forecast for consumer price index inflation by half a percentage point to 2.5-3.5 per cent.

Economists say the upward floating band policy for the Singdollar tackles goods price inflation, but also gives foreign investors buying the local unit or assets a guaranteed return in currency terms.

'Before the US Federal Reserve raises its interest rates, you have a sweet spot for investors, barring incidents,' said Wei Zheng Kit, Citigroup director, Asia Pacific economic and market analysis. 'It (Singdollar tightening) has a perverse effect on asset price inflation and other tools may be needed to tackle this,' he said.

Several economists expect the Singdollar to continue appreciating until the end of the year.

DBS's senior currency economist Philip Wee said he sees the USD/SGD testing its all-time low in the next 6-12 months.

'We now see USD/SGD falling to 1.34 (again) by end-2010 instead of 1.38. The new forecasts are consistent with the one-off 1.875 per cent appreciation via the re-centring and the return to a 2.1 per cent annual appreciation path.'

Yesterday the Singdollar continued to strengthen. It was $1.3743 to the US dollar, from $1.3769 on Wednesday.

Banks have been quick to offer cheaper home loan packages to borrowers.

DBS's current promotion of its popular three-year fixed rate package charges 1.99 per cent for three years, down from its regular 2.20 per cent package.

'The latest promotion includes a protection element - mortgage insurance called My Protector Mortgage,' said Fen Peh, a DBS spokeswoman. 'Customers who choose to take up this promotion for our three-year fixed rate will enjoy preferential rates of 1.99 per cent for the first three years,' she said.

How long will home buyers be able to enjoy low interest rates?

Many expect that as soon as the US hikes its interest rates which could be towards year-end, local interest rates will rise. In the meantime, some think the MAS could intervene to prevent asset bubbles.

Said Selena Ling, OCBC economist: 'Monetary policy tightening may fuel SGD appreciation expectations, and may attract further capital inflows, which should prove beneficial to the SGS bond market, at least for the shorter tenures.

'Liquidity management will likely take on an even more prominent function to drain excess liquidity conditions from further fuelling any potential asset bubbles in the making.'

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