October 23, 2002	Wednesday	Sha’aban 16,1423

SINGAPORE, Oct 22: After two straight months of continuous increases, interbank rates here have eased finally—much to the relief of current and prospective home owners who had feared that borrowing costs would soon go up.

But do not expect banks here to wage another damaging price war, not in public at least, say industry-watchers.

This is because pressure on profit margins for banks is still tight in the ultra-competitive home loans sector.

Mortgage rates are still at their all-time lows, for example, despite the banks’ borrowing costs rising potentially 50 per cent from August levels.

Interbank rates are a closely watched indicator of where mortgage rates are headed in the short to medium term since they are the “wholesale” rates at which banks borrow Singapore dollars to finance loans granted here. After hovering 0.8 per cent and 0.9 per cent for the last several months, the closely watched three-month Singapore Interbank Offer Rate shot up suddenly to 1.43 per cent early this month.

The increase — which was fuelled by renewed buying interest in the property sector following changes to Central Provident Fund rules — sparked speculation that banks would soon have to increase their board rates, to which mortgage rates are pegged.

But since then, the three-month rate has fallen to about 1.1 per cent.

Economists attribute this partly to the weakening Singapore dollar amid the uncertain economic outlook for the region, especially in light of the terrorist bombings in the Indonesian resort of Bali.

“Also, the banks seem to have raised enough money to cover their funding needs for housing loans so the demand for liquidity has eased,” said ABN-Amro Bank economist Irene Cheung.

Looking ahead, she reckoned that interbank rates will hold steady until the end of the year.

Rates are unlikely to fall further because a stock market rally in the United States has diminished chances of another cut in the US interest rates.

And they are unlikely to rise as the economic outlook for Singapore remains mixed, especially with the “weak-ish” trade numbers released recently, added Ms Cheung.

So although competition will still be fierce for new mortgages and re-financing deals, banks will be more cautious and engage in more covert competition, said online wealth management firm dollarDEX.com in a research note to its clients.

“Don’t rush, choices will still be a-plenty,” said the firm that compiles an index that ranks home loans offerings in terms of how much value-for-money they give.

“But this time, the best rates may not be published because they are increasingly dependent on individual credit profiles.” —The Straits Times/ Asia News Network