SINGAPORE – In a surprising twist, Singapore's money-market rates have plunged, marking the lowest benchmark interest rate for home loans since late 2022. On March 13, the daily Singapore Overnight Rate Average (SORA), which serves as the benchmark for various loan products including home loans, dipped to an impressive 2.08 percent. This is the lowest rate observed since December 30, 2022, but a subsequent rise to 2.24 percent was noted the following day.

Analysts attribute this decrease to several key factors, including a slowdown in lending activity, increased foreign investments in fixed deposits, and a robust Singapore dollar. These elements have created favorable cash conditions in the financial landscape. Following the Monetary Authority of Singapore (MAS)’s recent monetary policy shift—the first in five years—the market reacted contrary to expectations. The MAS had indicated a loosening of monetary policy in January, which many predicted would lead to rising interest rates as traders anticipated higher returns from a weaker currency influence. Surprisingly, those anticipated hikes failed to manifest.

The Singapore dollar has been outperforming many of its Asian counterparts in 2023, which has also contributed to lower borrowing costs. The currency's stability is further supported by the People's Bank of China amidst ongoing trade tensions with the United States, providing a favorable backdrop for Singapore's economy.

Frances Cheung, the head of forex and rates strategy at OCBC, notes, “Singapore dollar liquidity remains ample as investors maintain confidence in its appreciation, despite the MAS's previous adjustments in policy. Furthermore, the loan-to-deposit ratio continues to indicate a lower risk environment, now at 68.2 percent down from 70.5 percent at the start of the year.”

This decline in borrowing costs comes at a critical juncture for Singapore’s economy, with growth risks highlighted by MAS during its January assessment. However, while the landscape may seem ideal for borrowers seeking lower interest rates, caution is being expressed by financial strategists. Audrey Ong from Barclays predicts that authorities might resist a pronounced decrease in interest rates in the medium term to avoid overheating the property market, which has been under scrutiny for its rising prices.

In light of these developments, the influx of liquidity has sparked enthusiasm in the bond market as well. Notably, the recent auction of the 2035 Singapore sovereign bond yielded a bid-to-cover ratio of 2.03 times, marking the highest demand for the 10-year tenor since July 2022.

As rates remain volatile, potential homebuyers and investors are encouraged to stay informed about the financial climate, and the implications of these shifts could prove significant for anyone looking to enter the property market or refinance existing loans.