Singapore’s money-market rates have fallen following the central bank’s first monetary policy change in five years, with traders showing little reaction to the move. The Singapore Overnight Rate Average (SORA), a key benchmark for local loans, dropped to 2.08% this week, marking its lowest level since 2022. This decline is attributed to slower lending, a surge in foreign inflows into fixed deposits, and a resilient Singapore dollar that has helped maintain ample liquidity in the market.
In January, the Monetary Authority of Singapore (MAS) made a dovish pivot by adjusting its monetary policy stance and reducing the value of the local currency. This shift was expected to push interest rates higher as traders anticipated increased returns from a weaker Singapore dollar. However, such expectations have not materialized, and borrowing costs have remained relatively stable.
The strength of the Singapore dollar, especially against other Asian currencies, has also contributed to the lower borrowing costs. The currency, which is closely tied to the yuan, has benefitted from support by China’s central bank, particularly in the context of ongoing tensions with the United States.
Frances Cheung, head of FX and rates strategy at Oversea-Chinese Banking Corp, noted that Singapore dollar liquidity remains abundant, with many investors still holding expectations of currency appreciation despite the MAS’s policy adjustments in January. Furthermore, the country’s loan-to-deposit ratio remains low, indicating a conservative approach to lending.
The drop in borrowing costs comes at a crucial time for Singapore’s economy, with the MAS acknowledging potential downside risks to growth in its January policy decision. The city’s loan-to-deposit ratio decreased from 70.5% at the end of 2023 to 68.2% in January, signaling a more cautious lending environment.
However, experts suggest that authorities would be wary of a significant decline in interest rates over the medium term, as this could hinder their efforts to cool the property market. Audrey Ong, a strategist at Barclays Plc, emphasized in a recent note that a sharp reduction in rates may undermine policy objectives.
For now, the more favorable liquidity conditions have spurred strong demand in bond markets. The February 26 sale of the 2035 sovereign bond recorded a bid-to-cover ratio of 2.03 times, the highest for a 10-year tenor since July 2022.
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