What is Sibor?
The Singapore Inter-bank Offered Rate (SIBOR), is the average interest rate that Singapore banks borrow from each other. It is a factor of the liquidity of the local banks and the US interest rate; and is in essence the daily rate at which Singapore banks offer to lend unsecured funds to one another in the Singapore money market.
Like most export dependent economies, the Singapore market is subjected to influences of the global economy, where the US, despite its escalating economic issues, are still the market movers. SIBOR affects both deposit rates and mortgage loans and is updated on the first business day of each month.
How SIBOR affects interest rate
SIBOR is one of the core factors affecting both savings deposit rates and variable rate loans. When you have spare funds and wish to deposit them in a bank, it influences how much interest you will get. When you are in need of funds and are seeking a loan from the bank, it influences how much interest the bank will charge you over your tenure.
What is SOR?
The Swap Offer Rate (SOR) is the interbank lending rate plus the Banks’ lending cost. In addition, it also accounts for the USD/SGD exchange rate. SOR is typically quoted for commercial loan financing although it can also be a benchmark for residential property loan.
SOR and SIBOR – which is more volatile?
Both SIBOR and SOR pegged loans belong to variable rate loans (compared to fixed rate loans) and are available from most banks in Singapore. With forex as an extra variable in its calculation, SOR rates are more volatile than SIBOR. Loans or mortgages pegged to SOR tend to be subjected to higher uncertainty than SIBOR based loans, and can go lower (and conversely, higher) faster than SIBOR.
The second factor that influence volatility is the types of SIBOR and SOR referenced. Banks offers different SIBOR and SOR options – 1 month, 3 month, 6 month, 9 month and even 12 month SIBOR and SOR rates. Shorter termed SIBOR and SOR offers the lower rates, compared to the longer termed rates. Such short term SIBOR or SOR pegged loans are also more volatile and subjected to change more frequently. Take for instance the 1 month SIBOR at 0.3 % and a 12 month SIBOR at 1.2%, both offered by the same bank. The 1 month SIBOR package offers lower cost of borrowing, but it can change 12 times in a year, compared to the 12 month SIBOR package. The best option between stability and low rates is usually something in between.