Yen Kai's Idea Cast

The past few days have been the most volatile on all financial fronts, be it equities, exchange rate or interest rates. In Singapore, the 3 months SIBOR spiked to 2.23% due to "spillover from the US funding freeze and also the increase in risk aversion in the local interbank market". The Monetary Authority of Singapore (MAS) had increased liquidity in the local money market in their effort to keep SIBOR in check.

There has been a lot of volatility in the SOR and SIBOR the past few days, reacting to the jump in LIBOR as people are "afraid to lend to one another". The 3 month SOR has broken through the previous high of 1.63 to hit 1.7, since i started tracking it in April.

With the collapse of Lehman Brothers, many were wondering if the Feds will cut their target rates to help keep credit flowing. The FOMC decided to keep rates at 2%.

I should be expecting a letter from my bank soon, telling me that the interest rate chargeable on my housing loan will be revised to 1.9%, with effect from September 1. This is a second time win for me, having my housing loan interest rate shaved by another 0.1%.

Predictions for the Fed Funds Rate tell us that it looks set to remain at 2% at least until October.

So far i have become acquainted with the Federal Funds Rate, bonds and foreign exchange. It's time to look at two very important topics - inflation and money supply. This article looks at some of the implications of events taking place on inflation and money supply.

The 3 month fixing SOR has gone up 0.10% for 2 consecutive days. This is probably attributed to the rising US dollar (falling Singapore dollar). According to interest-rate parity theory, the interest rate has to rise to make up for a fall in the currency so that it maintains parity with another currency.

It's hard to write about this subject, but bonds is something that cannot be left out of the equation. i have been pondering for some time what part bonds play in interest rate movements. Does the bond yield lead or trail interest rates? Lets explore that.

The Federal Open Market Committee (FOMC) has kept the federal funds rate at 2.0% - news that is not news since it was widely anticipated. What is more important to note perhaps, is that "in its statement, the Fed gave no sign that it plans to change policy in the foreseeable future."

Excerpts from news sources

Found another article explaining Interbank Interest Rate Determination in Singapore. Published in 1999 by the Monetary Authority of Singapore (MAS), it stipulates that

Only changes in US interest rates or market expectations of future movements in the exchange rate have a significant impact on the domestic interbank rate.

One step forward in my quest on what moves interest rates - interest rate parity. Simply put, this theory states that

the interest rate differential between two countries is equal to the differential between the forward exchange rate and the spot exchange rate.