Off the back of the previous hike in March, the latest rise in interest rates by the US Federal Reserve marks the seventh increase since December 2015, and the second increase within the year, reflecting the aggressive stance towards increasing the rates in the coming years against the backdrop of high expectations of “strong” economic growth, in order to sustain the pace of growth without fuelling inflation. A collective vote brings the federal funds rate within range of 1.75 to 2 per cent, however, it has been revealed that central bankers are expecting rates to end the year at 2.4 per cent, as opposed to the 2.1 per cent that was projected in March. The median forecast of members of the Fed’s rate-setting Federal Open Market Committee (FOMC) pegs the benchmark at 3.1 per cent at the end of 2019, a revision to the previous 2.9 per cent, signalling four hikes in the following year, rather than three. The revision to previous projections of rates reflects a strengthening US economy, where unemployment has been at its lowest level since April 2000. Inflation has also rose, even as stock markets have accelerated to record highs. While a stronger US economy warrants good news for regional exporters, it could also be a cautionary sign for Singapore. As Singapore interest rates are aligned closely with those in the US, higher levels symbolise greater borrowing costs for households and companies on the island. These would affect rates on mortgages, credit cards and corporate loans. The three-month Sibor, or Singapore inter-bank offered rate – is commonly used to price home loans – reached 1.52 per cent after the Fed rate hike announcement. This marked the highest it has been since the global financial crisis of 2008. The Sibor is typically highly correlated with US interest rates and has been rising in tandem with Fed hikes. In light of the continuous hikes in interest rates, it would be prudent for Singaporeans to maintain a watchful eye over the changes being made over on the other side of the world.
