In my last blog, I mentioned about the potential for SIBOR and SOR to tick upwards. True enough. If you check the SIBOR and SOR today, they have gone up since then. There is nothing so surprising about it. USD is creeping up against SGD. Now, SOR is moving exactly in the opposite direction to what it did a month ago.
Although SIBOR should be quite stable given the US Federal Chairman's commitment to keep interest rate at ultra low for the time being, it may be a different story for SOR. Normally, SIBOR and SOR should track each other closely. The volatility in the stock markets is creating a mad rush to liquidity i.e. US dollars. Similar to 2008/2009 crisis, cash is always king in times of chaos. And, of course, when you have to keep cash, you would like to keep one that can be moved around easily. With potentially weak local growth forecast, SGD is expected to depreciate or appreciate less against USD. As a component in the derivation of SOR is based on expected USD/SGD exchange rate, the weakening SGD is pushing SOR upwards.
In a way, the near future outlook of SOR will very much depend on outcome of the European crisis as well as the strength of Singapore economy.
