Singapore’s benchmark interest rate, the SIBOR, is tied to the U.S. Fed Funds Rate to minimise large swings in the USD-Singapore dollar exchange rate. Low interest rates are a direct cause of credit bubbles, and Singapore is no exception.
Since the SIBOR is used to price most of the loans and mortgages in Singapore, a very low SIBOR means cheap credit for Singaporeans. The ratio of household debt to gross domestic product now stands at around 75%, up from 55% in 2010 and 45% in 2005, according to data compiled by Standard Chartered.
Furthermore, 70% of those loans have floating interest rates, meaning that once the Fed tapers, mortgage repayments will increase too, possibly exposing unsustainable debt in the system. Full story
