If you are still in the dreamland of low interest rate environment, this should be a wake up call. Globally, the monetary policies are tightening and China has experienced its liquidity squeeze.
On June 20, the 1-day SHIBOR surged 578.4 bps to a record high of 13.44%.
For those who are not familiar with SHIBOR, it is like LIBOR in London and SIBOR in Singapore. SHIBOR refers to the Shanghai Interbank Offered Rate. It is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Shanghai wholesale (or “interbank”) money market.
There are eight Shibor rates, with maturities ranging from overnight to a year. They are calculated from rates quoted by 16 banks, eliminating the two highest and the two lowest rates, and then averaging the remaining 12.
To put the figures in perspective, look at the historical Libor chart below. Libor shot up to be more than 7% during dot com bubble and more than 5% during Lehman crisis. Though Shibor was always understandably higher than Libor, it is the magnitude and speed of the increase make the market worried.
In time of crisis, the rate does not rise, it levitates!
I think interest rates mostly increase when the economy
recovers and interest rates go down when the economy is in
recession. Low interest rates will stimulate growth and cause
inflation while high interest rates will limit growth and lower
inflation. If the govt is stupid to increase interest rates during
periods of slow growth then it will cause the economy to crash even
further. I don’t think the rise in interest rates globally now is
due to a crash coming however it is due to an anticipation of an
economic recovery. The markets will be affected temporary only but
will regain its form after awhile.
Will appreciate your advise on whether interest rate in Singapore will mirror that and how it will affect the housing market?