[Question] Would a recession cause interest rates to rise or fall?

[zuoom]

the question now is whether it is a recession or stagflation.

I am more worried about stagflation where inflation is high, and central banks raise interest rates to try to control the runaway inflation.

it is still too early to say that....

the only effective methods to pull US out of either recession or stagflation are to stimulate govt spending and easing monetary policies.

we will see how the things play out by the end of 1st quater.

I don't believe that the situation in the US is anomalous. On the contrary, it is perfectly logical.

The short end of the yield curve is subject to Fed manipulation, but the long-end less so. The long-end has for the past few years been subject to the influence of the SWFs and foreign central banks recycling their USD surpluses, which resulted in artificially-low long-term rates (below CPI increases).

Now that there is systemic collapse of the credit markets, risk aversion has returned and the long-end of the curve has moved back up to more realistic levels taking into account the massive monetary inflation that is happening around the world.

The Fed needs a positive-sloping yield curve in order to reliquefy the financial system and repair bank balance sheets.

From an Austrian perspective, long term rates are therefore not likely to come down soon. In fact, once inflationary expectations become more widespread (e.g. more people realising what gold is saying about market conditions), rates could move even higher.

Wish I could but don't have that type of money hanging around.

If you are a BIG risk taker, perhaps it would be profitable to sell the property if it is not in negative equity, and rent instead, for the following reasons.

Firstly, the property bubble in the UK has lasted for more than a decade, and therefore any mean-reversion in prices would take a while to bring affordability back to historical norms.

Secondly, there are serious structural flaws in the UK economy.  As a graduate student there a decade ago, during the period when Rover was flirting with bankruptcy, I realised how lopsided the economy had become.  Manufacturing was killed by the strong Sterling pound while the financial sector was growing by leaps and bounds.  Today, in terms of tax revenue, the City of London is the ONLY net contributor to HM's Treasury.  Every other region of the UK is a net receiver of subsidies.

Given the importance of the City, it is likely that with the systemic crisis in the global financial system, the UK economy will be hit hard compared to the rest of Europe, which has a more balanced economic structure.  And with household debt levels even higher than those in the US, the risk of financial distress for the average household will rise significantly going forward.

Anyway, these are just my rants.  Please don't take them too seriously.  Consult a qualified financial advisor before making a decision.

 ::wink:

Hi Siginah,

can you please elaborate on 'The long-end has for the past few years been subject to the influence of the SWFs and foreign central banks recycling their USD surpluses, which resulted in artificially-low long-term rates (below CPI increases)' ?

thanks  ::|

This is a game pioneered by the Japanese in the 1980s.

Countries that have trade surpluses with the US will prevent their own currency from appreciating by printing money and buying up the USD.  They will then recycle the USD back into the US by buying American assets.  For central banks, esp those of China and Japan, they have been buying up Treasury debt, esp at the long-end of the yield curve.  This is actually artificial demand which has kept interest rates down.

Now that all these countries are starting to realise that the yield is lower than CPI increases, they are diversifying into other assets, and hence the rise of the SWFs.  This also means that as long as monetary inflation exists, the long-term interest rates in the US will rise, being in line with its status as the world's largest debtor.

via : http://forums.sgfunds.com/viewtopic.php?t=8700

[Vorsprung durch Technik]

if car loan interest rate fall below 2%, it will be a sign for the rest

[zuoom]

[tags] interest rate

[zuoom]

the rates are crazy from what where i'm looking at...

on one hand it's going up, on the other it's getting slashed.

what's happening???

[zuoom]

(Reuters) - South Korea, Hong Kong and Taiwan on Thursday followed the Federal Reserve and central banks from Europe, Canada and China in cutting interest rates to contain the market meltdown.

Following are some details about interest rate cuts announced this week by central banks around the world:

* AUSTRALIA - The Reserve Bank of Australia cut its benchmark cash rate by 100 basis points to 6.0 percent on Tuesday, stunning investors with its biggest interest rate cut in 16 years.

* BAHRAIN - Bahrain cut its one-week deposit rate and overnight lending rate by 25 basis points and its repurchase rate by 50 basis points on Thursday. The one-week deposit rate was reduced to 1.75 percent from 2 percent and the overnight deposit rate was reduced to 1.25 percent from 1.5 percent.

* BRITAIN - The Bank of England cut interest rates by half a percentage point on Wednesday. The unscheduled cut to 4.5 percent was the biggest in seven years and only the second time the BoE has moved interest rates outside of its regular monthly cycle since the central bank was made independent in 1997.

* CANADA - The Bank of Canada unexpectedly cut its key interest rate by 50 basis points to 2.50 percent on Wednesday.

* CHINA - China cut interest rates and lowered banks' required reserves on Wednesday. The cost of one-year bank loans will fall from Thursday to 6.93 percent from 7.20 percent, while the benchmark one-year deposit rate will fall to 3.87 percent from 4.14 percent. It is the first time that the People's Bank of China has announced a change in interest rates at the same time as other central banks.

* EUROPEAN CENTRAL BANK - The European Central Bank on Wednesday slashed its main rate to 3.75 percent from 4.25 percent and said it would halve the premium banks pay for emergency borrowing over its main refinancing rate.

* HONG KONG - The Hong Kong Monetary Authority on Thursday lowered the base rate charged through its overnight discount window by 50 basis points to 2.0 percent.

* INDIA - The Reserve Bank of India on Monday said it would cut the cash reserve ratio for banks by 50 basis points to 8.5 percent from October 11, a step it said would release 200 billion rupees ($4.2 billion) into the banking system.

* ISRAEL - The Bank of Israel reduced its key lending rate by a half-point to 3.75 percent from 4.25 percent in an unscheduled move on Tuesday.

* KUWAIT - Kuwait slashed the benchmark discount rate to 4.5 percent from 5.75 percent and the repo rate to 2.5 percent from 3.5 percent on Wednesday.

* SOUTH KOREA - The Bank of Korea on Thursday lowered its base rate to 5.00 percent from a 7-1/2-year high of 5.25 percent set in August, the first rate reduction after a string of eight increases since late 2004.

* SWITZERLAND - The Swiss National Bank (SNB) lowered on Wednesday its target for the LIBOR by 25 basis points to 2.50 percent. It was the first time in over five years that SNB cut interest rates.

* TAIWAN - Taiwan's Central Bank slashed its interest rate by 25 basis points on Thursday, bringing down the benchmark discount rate to 3.25 percent, the lowest level since September 2007.

* USA - The Federal Reserve cut its key federal funds lending rate by half a percentage point to 1.5 percent on Wednesday. It also lowered its discount rate by the same amount to 1.75 percent.

(Compiled by Jijo Jacob, Editing by David Cutler)

via : http://www.reuters.com/article/americasDealsNews/idUSTRE4983LZ20081009

[tags] interest rate cut IRC

[zuoom]

By Krishna Guha in Washington and Michiyo Nakamoto in Tokyo

Published: October 29 2008 19:44 | Last updated: October 29 2008 19:44

The US Federal Reserve cut interest rates by half a percentage point to 1 per cent on Wednesday and announced that it would lend $30bn each to central banks in Brazil, Mexico, South Korea and Singapore to lend on to local banks.

The dollar loans, structured as currency swaps, are intended to help meet intense demand for dollars in these major emerging markets.

The Fed’s rate cut takes US rates down to a level only once equalled before, amid the deflation scare of 2003 to 2004. It aims to offset the sharp recent tightening in credit conditions that threatens to plunge a weakening US economy into a recession.

US stocks swung wildly in the immediate aftermath of the Fed’s move, but then moved higher. Investors also appeared encouraged by reports that the US authorities could be close to announcing a new mortgage guarantee programme to aid home loan restructuring. By the close in New York, the S&P 500 was down 1.1 per cent.

In Europe, where markets closed ahead of the Fed’s announcement, the FTSE 100 ended up 316 points at 4,242.54, a rise of 8.1 per cent – its third-biggest percentage gain. France’s CAC 40 index was 8.4 per cent higher while in Germany, the Xetra Dax slid 0.3 per cent lower, dragged down by the retreat of market heavyweight Volkswagen.

The Fed said the pace of economic activity had “slowed markedly, owing importantly to a decline in consumer expenditures”. Business spending was also weaker and the global growth slowdown was “dampening the prospects for US exports”.

It added that the “intensification of financial market turmoil” was “likely to exert additional restraint on spending”. The Fed said it expected its rate cuts, “extraordinary” liquidity operations and other efforts would achieve moderate growth and price stability, but said “downside risks remain”.

In a separate statement, the US central bank said its dollar loans to the four emerging markets would “mitigate the spread of difficulties in obtaining dollar funding in fundamentally sound and well managed economies”.

The International Monetary Fund simultaneously announced plans to make large loans rapidly available to a wider group of well-run emerging economies that meet basic fiscal tests with very few strings attached.

The moves came after the People’s Bank of China cut interest rates for the third time in six weeks. he bank cut the benchmark rate for one-year loans by commercial banks by 27 basis points to 6.66 per cent.

The world’s major central banks are all now easing or set to ease rates in what is a global effort to combat the downturn.

The yen rose by 1.7 per cent to Y97.00 against the dollar.

Copyright The Financial Times Limited 2008
source : http://www.ft.com/cms/s/0/1d12615a-a5ef-11dd-9d26-000077b07658.html

via : http://forums.vr-zone.com/showthread.php?t=345792

[zuoom]

It's a loan which is not a loan.

http://www.mas.gov.sg/news_room/press_releases/2008/MAS_Announces_Swap_Facility_with_US_Federal_Reserve_as_part_of_Coordinated_Central_Bank_Actions.html

=============

huh?

uber confusing now.

[zuoom]

incidentally, Iceland is experiencing 18% interest rate.

so, it depends on where you are looking.

=============

i recall reading something about negative interest on the Japanese Yen.... apparently something to do with carry trade.

=============

as much as it's confusing for me, it just gets more interesting by the day.

[zuoom]

[News] Shades of 1997 in recent gains of the baht
http://www.celicasg.org/index.php?topic=1018.0
[tags] key interest rate cut KIRC

[zuoom]

By Krishna Guha in Washington and Michiyo Nakamoto in Tokyo

Published: October 29 2008 19:44 | Last updated: October 29 2008 19:44

The US Federal Reserve cut interest rates by half a percentage point to 1 per cent on Wednesday and announced that it would lend $30bn each to central banks in Brazil, Mexico, South Korea and Singapore to lend on to local banks.

The dollar loans, structured as currency swaps, are intended to help meet intense demand for dollars in these major emerging markets.

The Fed’s rate cut takes US rates down to a level only once equalled before, amid the deflation scare of 2003 to 2004. It aims to offset the sharp recent tightening in credit conditions that threatens to plunge a weakening US economy into a recession.

US stocks swung wildly in the immediate aftermath of the Fed’s move, but then moved higher. Investors also appeared encouraged by reports that the US authorities could be close to announcing a new mortgage guarantee programme to aid home loan restructuring. By the close in New York, the S&P 500 was down 1.1 per cent.

In Europe, where markets closed ahead of the Fed’s announcement, the FTSE 100 ended up 316 points at 4,242.54, a rise of 8.1 per cent – its third-biggest percentage gain. France’s CAC 40 index was 8.4 per cent higher while in Germany, the Xetra Dax slid 0.3 per cent lower, dragged down by the retreat of market heavyweight Volkswagen.

The Fed said the pace of economic activity had “slowed markedly, owing importantly to a decline in consumer expenditures”. Business spending was also weaker and the global growth slowdown was “dampening the prospects for US exports”.

It added that the “intensification of financial market turmoil” was “likely to exert additional restraint on spending”. The Fed said it expected its rate cuts, “extraordinary” liquidity operations and other efforts would achieve moderate growth and price stability, but said “downside risks remain”.

In a separate statement, the US central bank said its dollar loans to the four emerging markets would “mitigate the spread of difficulties in obtaining dollar funding in fundamentally sound and well managed economies”.

The International Monetary Fund simultaneously announced plans to make large loans rapidly available to a wider group of well-run emerging economies that meet basic fiscal tests with very few strings attached.

The moves came after the People’s Bank of China cut interest rates for the third time in six weeks. he bank cut the benchmark rate for one-year loans by commercial banks by 27 basis points to 6.66 per cent.

The world’s major central banks are all now easing or set to ease rates in what is a global effort to combat the downturn.

The yen rose by 1.7 per cent to Y97.00 against the dollar.

Copyright The Financial Times Limited 2008
source : http://www.ft.com/cms/s/0/1d12615a-a5ef-11dd-9d26-000077b07658.html

via : http://forums.vr-zone.com/showthread.php?t=345801

Oops!!! My apology...................but hell, imperialarm is still misleading:D

Fed Opens Swaps With South Korea, Brazil, Mexico (Update1)

By Steve Matthews and William Sim

 Oct. 30 (Bloomberg) -- The Federal Reserve agreed to provide $30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore, expanding its effort to unfreeze money markets to emerging nations for the first time.

The Fed set up ``liquidity swap facilities with the central banks of these four large systemically important economies'' effective until April 30, the central bank said yesterday in a statement. The arrangements aim ``to mitigate the spread of difficulties in obtaining U.S. dollar funding.''

South Korea's benchmark stock index had its biggest gain since at least 1980, the won surged and the cost of protecting Asia-Pacific bonds from default tumbled on optimism the measures will prevent the global credit crisis from upending financial markets. The Fed and China cut interest rates yesterday, followed by Hong Kong and Taiwan today.

``The swap lines will help unclog the liquidity pipeline and that action is boosting markets even more than'' the Fed's rate cut, said Venkatraman Anantha-Nageswaran, head of research at Bank Julius Baer & Co. in Singapore. ``It's a step in the right direction and prevents things from getting worse.''

South Korea's Kospi Index surged 10.5 percent to 1072.81 at 12:33 p.m. in Seoul. The won jumped 10 percent against the dollar. Singapore's Straits Times Index climbed 3.6 percent.

The cost of protecting Asia-Pacific bonds from default tumbled, with the Markit iTraxx Asia credit-default swap index of 50 borrowers falling the most since its was created in September 2007.

IMF Credit Lines

The Fed announcement coincided with a decision by the International Monetary Fund to almost double borrowing limits for emerging market countries while waiving demands for economic austerity measures.

The Fed and IMF actions ``show international resolve to support strong performing emerging-market economies adversely impacted by the current financial market turbulence,'' U.S. Treasury Secretary Henry Paulson said in a statement.

Emerging-market investors have created ``massive demand for dollars and a reduction of liquidity in other currencies'' by going back to investing in the U.S. currency, said David Spegel, head of emerging-market strategy at ING Financial Bank NV in New York.

The Fed swap lines ``are designed to help restore liquidity so that a vicious negative spiral doesn't occur,'' he said.

The yield premium on emerging-market dollar bonds over U.S. Treasuries narrowed yesterday by 61 basis points, or 0.61 percentage point, to 7.21 percentage points, according to JPMorgan Chase & Co.'s EMBI+ index. The spread has jumped 5.72 percentage points from a record low of 1.49 percentage points in June 2007, and reached its widest since 2002 earlier this month.

Emerging Markets

``The Fed is there to support large emerging markets that have done their homework over the past several years like South Korea, Brazil, Singapore and Mexico,'' said Alonso Cervera, a Latin America economist with Credit Suisse Group in New York. ``These are large, relevant emerging countries that have followed responsible fiscal and monetary policies for the past several years and now are going through tough times.''

The Fed also created this week a $15 billion swap line with its New Zealand counterpart and removed limits this month on four existing swap lines, including one with the European Central Bank. The Fed set up a $10 billion arrangement with Australia's central bank last month and then tripled it to $30 billion.

`Hoped-For Result'

``The hoped-for result is that we don't see the global financial crisis worsen still more,'' said Lyle Gramley, a former Federal Reserve governor who is now senior economic adviser at Stanford Group Co. ``The Fed is making dollars available to the central banks of these countries who are trying to meet the needs of their banking systems.''

The Bank of Korea cut interest rates by a record amount on Oct. 27 and the government pledged to guarantee local banks' debts to help lenders struggling to access foreign funds. Stocks and the won tumbled last week, prompting concern the country may face a currency crisis a decade after the IMF organized a $57 billion bailout to help repay overseas debt.

The swap line with the Fed ``will expand our foreign- exchange reserves and help stabilize the currency market,'' Bank of Korea Governor Lee Seong Tae told reporters in Seoul today. ``We'll also try to cooperate with other central banks to stabilize global and local financial markets.''

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net; William Sim in Seoul at wsim2@bloomberg.net

Last Updated: October 29, 2008 23:36 EDT

via : http://www.singsupplies.com/showthread.php?t=8099

[zuoom]

Swaps: Arcane Market Is Next to Face Big Credit Test
http://www.celicasg.org/index.php?topic=2517.0

[Article] 10 minutes to understand the current world financial crisis
http://www.celicasg.org/index.php?topic=4390.0

both article is on the credit default swaps aka CDS.

[zuoom]

incidentally, Iceland is experiencing 18% interest rate.

so, it depends on where you are looking.

=============

i recall reading something about negative interest on the Japanese Yen.... apparently something to do with carry trade.

=============

as much as it's confusing for me, it just gets more interesting by the day.

Iceland's interest rate up to 18%
via : http://news.bbc.co.uk/2/hi/business/7694785.stm

Iceland's central bank has raised its key interest rate to 18% from 12% as it battles against financial collapse.

The rise comes less than two weeks after Iceland cut rates from 15.5%.

The central bank governor said the increase was part of its agreement with the International Monetary Fund, from which it borrowed $2bn (£1.3bn).

Iceland's prime minister said the country needed another $4bn in loans and had approached the European Central Bank and the US Federal Reserve.

Currency slump

Central bank governor David Oddsson said that he hoped the rise in rates would only last for a short time and added that the move was designed to stabilise the currency.

It is the very same policy that has caused considerable damage in previous IMF rescues, such as in the Asian crisis
Jon Danielsson, London School of Economics
Why raising rates won't work

"With the collapse of three banks and the harsh external measures that followed, Iceland's foreign exchange market became paralysed," the bank said in a statement.

The government has imposed strict foreign exchange restrictions on the trading of its currency.

The Icelandic crown traded internationally for the first time for a week on Tuesday, with the value slumping to 240 to the euro from Monday's official fix of 152.

There has been some criticism of the conditions that the IMF has placed on its loans over the years, which have also included currency devaluations and austerity programmes.

"Given the damaging role of high interest rates in events leading up to the crisis, it is very unfortunate that as a part of their conditions, the IMF has insisted on a high interest policy," says Jon Danielsson at London School of Economics.

"Indeed, it is the very same policy that has caused considerable damage in previous IMF rescues, such as in the Asian crisis."

Nordic summit

Iceland has been struggling since it was forced to take over its three biggest banks, which had been hit by the credit crunch.

The country's Prime Minister, Geir Haarde, made his comments about the need to raise an extra $4bn on the sidelines of a meeting with other Nordic countries.

"It's not a precise number, it's not a scientific number but we are looking in that neighbourhood," Mr Haarde said.

Mr Haarde would not say how much of the additional money he was hoping to borrow from the other Nordic countries: Sweden, Finland, Norway and Denmark.

"I do not want to put pressure on them," he said.

[zuoom]

http://news.bbc.co.uk/2/hi/business/7658908.stm

Why raising interest rates won't work

Analysis
Jon Danielsson
Economist, Financial Markets Group, London School of Economics

The first industrialised country to request assistance from the International Monetary Fund (IMF) in over 30 years is Iceland.


The crisis will hurt ordinary Icelandic households.

The reason is that Iceland was hit by the deepest and most rapid financial crisis in peacetime history.

At the moment, the Icelandic economy has come to a standstill, it is almost impossible to transfer foreign currency between Iceland and abroad, which is a calamity for a country that is almost entirely dependent on imports and exports.

Exporters cannot bring export earnings into Iceland, and it is very difficult to obtain foreign currency to purchase necessities.

The key factor in Iceland's failure has been the monetary policy pursued by its central bank, in particular inflation targeting, similar to the UK.

This means the central bank targets inflation, raises interest rates if inflation is above the target, and lowers them if inflation is below target.

Such a policy has a sound foundation in economic theory and is often appropriate for large countries.

In the case of Iceland, it was disastrous.

Financial bubble

Throughout the period of inflation targeting, inflation was above its target rate, resulting in interest rates exceeding at times 15%.

In a small economy like Iceland high interest rates both encourage domestic firms and households to borrow in foreign currency, and also attract currency speculators.

   

Given the damaging role of high interest rates in events leading up to the crisis, it is very unfortunate that the IMF has insisted on a high interest policy

This brought large inflows of foreign currency, leading to sharp exchange rate increases, giving the Icelanders an illusion of wealth.

The speculators and borrowers profited from the interest rate difference between Iceland and abroad as well as the exchange rate appreciation.

These effects encouraged economic growth and inflation, further leading the central bank to raise interest rates.

The end result is a bubble caused by the interaction between domestic interest rates and inflows of foreign currency.

The exchange rate was increasingly out of touch with economic fundamentals, with a rapid depreciation of the currency inevitable.

This should have been clear to the central bank, which wasted several good opportunities to prevent exchange rate appreciations and build up reserves.

Given the damaging role of high interest rates in events leading up to the crisis, it is very unfortunate that as a part of their conditions, the IMF has insisted on a high interest policy.

Indeed, it is the very same policy that has caused considerable damage in previous IMF rescues, such as in the Asian crisis.

Independent bank?

Adding to this is the peculiar governance structure of the Central Bank of Iceland. Uniquely, it does not have one but three governors.

   

The Icelandic authorities do not seem to have appreciated the seriousness of the situation, not communicated appropriately with their international counterparts, leading to an atmosphere of mistrust

One or more of those has generally been a former politician.

Consequently, the governance of the central bank has always been perceived to be closely tied to the central government, raising doubts about its independence.

Currently, the chairman of the board of governors is a former long-standing prime minister.

Such a governance structure carries with it unfortunate consequences that become especially visible in the financial crisis.

By choosing governors based on their political background rather than economic or financial expertise, the central bank may be perceived to be ill-equipped to deal with an economy in crisis.

Oversized banking sector

The second factor in the implosion of the Icelandic economy this week has been the size of its banking sector.

Before the crisis, the Icelandic banks had foreign assets worth around 10 times the Icelandic GDP, with debts to match.


Iceland's prime minister Geir Haarde has been under the spotlight this week.

In normal economic circumstances this is not a cause for worry, so long as the banks are prudently run.

Indeed, the Icelandic banks were better capitalized and with a lower exposure to high risk assets than many of their European counterparts.

In this crisis, the strength of a bank's balance sheet is of little consequence. What matters is the explicit or implicit guarantee provided by the state to the banks to back up their assets and provide liquidity.

Therefore, the size of the state relative to the size of the banks becomes the crucial factor.

The relative size of the Icelandic banking system means that the government was in no position to guarantee the banks, unlike in other European countries.

This effect was further escalated and the collapse brought forward by the failure of the central bank to extend its foreign currency reserves.

'Pariah status'

The final collapse was brought on by the bankruptcy of the entire Icelandic banking system.

We may never know if the collapse of the banks was inevitable, but the manner in which they went into bankruptcy turned out to be extremely damaging to the Icelandic economy, and indeed damaging to the economy of the United Kingdom and other European countries.

The Icelandic authorities do not seem to have appreciated the seriousness of the situation, not communicated appropriately with their international counterparts, leading to an atmosphere of mistrust.

The UK authorities exasperated with responses from Iceland seem to have overreacted, using antiterrorist laws to take over Icelandic assets, and causing the bankruptcy of the remaining Icelandic bank.

Ultimately, this led to Iceland getting a pariah status in the financial system.

The original cause of the Icelandic crisis was a combination of inappropriate monetary policy and an outsized banking system.

Throughout this year, the Icelandic currency has been falling due to the currency speculators running for shelter.

This has caused doubts about the Icelandic economy and its banking sector.

What eventually tipped the balance was the current extreme global financial uncertainty, the mishandling of the crisis by the Icelandic authorities and the overreaction of the UK authorities.

The real tragedy in the crisis is the impact on Icelandic households; they are seeing payments on loans increased by up to 50%, and inflation which may reach 30% or more this year, with salaries frozen and mass layoffs.

Fortunately, the long-run macroeconomic potential is good.

Iceland is a natural resource-based economy, with plenty of untapped natural resources and well educated workforce.

The long-run economic outlook is therefore favourable.

[zuoom]

Australian Central Bank Signals More Key Rate Cuts

Nov. 10 (Bloomberg) -- Australia's central bank signaled it's prepared to add to the most aggressive interest-rate cuts in 17 years as it tries to ensure the economy sidesteps a looming global recession.

The bank today cut its 2008 economic expansion forecast to 1.5 percent from 2 percent and said it had been forced to make ``unusually large'' reductions in the overnight cash rate target in October and November because renewed global turmoil raised the risk growth will stall.

Governor Glenn Stevens has slashed the benchmark lending rate since early September by 200 basis points to 5.25 percent in the biggest round of cuts since a recession in 1991. Australia's weakening economy also means underlying inflation is now reaching a peak and will begin to slow in coming months, the bank said in its quarterly policy statement released in Sydney.

``There is still considerable scope for monetary policy to help the economy over the next 12 to 18 months,'' said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. ``They are saying the economy will keep expanding, but it will be seriously affected by the global slowdown.''

Reserve Bank policy makers will cut the benchmark rate by another half point to 4.75 percent on Dec. 2, according to 12 of 19 economists surveyed by Bloomberg News last week. Five expect a quarter-point reduction, one tipped a three-quarter-point cut and one forecasts a 1 percentage point decline.

`Appropriate Balance'

``The board will be seeking to strike the appropriate balance between avoiding an unduly sharp weakening in demand and the need for inflation to fall back'' within its target range of 2 percent to 3 percent ``over a reasonable period,'' today's statement said.

The Australian dollar traded at 69.05 U.S. cents at 12:02 p.m. in Sydney from 68.95 cents just before the statement was released. The two-year government bond yield rose 2 basis points to 3.87 percent. A basis point is 0.01 percentage point.

The bank said falling global demand for commodities, with base metals prices down by an average of more than 30 percent this year, means ``it's clear that Australia's terms of trade have now peaked.''

Income from foreign sales is ``likely to subtract noticeably from national income growth over the year ahead,'' it said.

Growth Forecast

Gross domestic product will rise 1.75 percent in 2009, less than the 2.5 percent expansion forecast by the bank in its August statement. The bank also said GDP will gain 2.5 percent in 2010, compared with its previous prediction of 2.75 percent.

``A more rapid unwinding of the resources boom than has been assumed would have significant negative effects throughout the economy, resulting in softer growth in domestic incomes and spending,'' today's statement said.

``A number of resource companies are reconsidering their capital expenditure intentions for 2009, and smaller mining firms in particular are likely to cut back their investment,'' the bank said. That will ``flow through into slower activity in other sectors of the economy.''

Australian companies, including builders, are finding it harder to borrow money, the central bank said.

The International Monetary Fund is forecasting that the U.K., Japan, the euro region and the U.K. economies will all contract next year in their first simultaneous recession since the World War II.

G20 Action

The Group of 20 nations said in a statement yesterday following a meeting in Sao Paulo that it's prepared to act ``urgently'' to bolster growth and called on governments to cut interest rates and raise spending as the world's leading industrialized economies battle the threat of a recession.

Ongoing stress in financial markets means it is ``possible that the deterioration in the external environment could continue,'' the Reserve Bank said. ``Even if this did not occur, the effects on domestic activity of the deterioration that has already occurred could be deeper or more persistent than expected in this outlook.''

Australia's economy grew 0.3 percent in the second quarter, the slowest pace in more than three years, as households cut spending for the first time since 1993.

Recent reports showed house prices fell 1.8 percent in the third quarter, the biggest drop since 1978, retail sales tumbled in September by the most in three years and job advertisements slid for a sixth month.

Home-loan approvals fell 2.7 percent in September, the eighth month of declines, a separate report showed today.

Core inflation is likely to remain ``around 4.5 percent'' during the year through December 2008 and then ``decline gradually'' to 3.25 percent by mid-2010 and 2.5 percent by mid 2011, the bank said.

Three months ago, it forecast inflation to slow to 3 percent by the middle of 2010.

via : http://forums.sgfunds.com/viewtopic.php?t=10037&highlight=

[zuoom]

http://en.wikipedia.org/wiki/SIBOR
SIBOR stands for Singapore Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Singapore wholesale money market (or interbank market). It is similar to the widely used LIBOR (London Interbank Offered Rate), and Euribor (Euro Interbank Offered Rate). Using SIBOR is more common in the Asian region and set by the Association of Banks in Singapore (ABS).

what is?
http://www.asiaone.com/Business/My%2BMoney/Starting%2BOut/Credit%2BAnd%2BLoans/Story/A1Story20080408-58704.html

What is SIBOR

What is SIBOR?

It stands for the Singapore Interbank Offered Rate.

Where do you see this?

In bank statements explaining how your mortgage rates are determined.

What does it mean?

It refers, more or less, to repayments on your loans, because Sibor affects the mortgage rate.

Sibor is the rate at which banks lend to one another. When it falls, so do rates for variable or Sibor-linked mortgages. When the Sibor rises, you have to fork out more.

Sibor also gives a rough indication of where deposit and savings account rates at banks might be headed, as it is influenced partly by the supply and demand for funds in the Singapore interbank market.

When Sibor is low, it is cheaper for foreign banks, which have a smaller deposit base than local ones do, to borrow funds from the interbank market for their lending activities.

When this happens, the foreign banks are less likely to offer higher fixed deposit rates to attract Singaporeans to park cash with them.

But when liquidity in the market is tight and interbank rates rise, local banks will offer more attractive rates to convince Singapore savers not to switch to foreign rivals.

Why is it important?

Sibor is a key component used by banks in setting their home loan rates.

A blend of different interest rates - such as one-month, three-month and even 12-month Sibors - is typically used by banks to set fixed or variable rates for home loans.

The three-month Sibor is a common benchmark rate used by the banks to adjust their deposit rates. By monitoring it, you can get an indication of where banks are headed next with their fixed deposit and savings account rates.

Sibor is also used to set rates for so-called transparent mortgage packages offered by the three local banks as well as Standard Chartered, HSBC and Citibank.

These are linked directly to Sibor or another publicly disclosed rate, such as the Central Provident Fund (CPF) rate or the swap offered rate (SOR).

SOR is made up of Sibor plus a bank's lending costs, and is currently at about 1.39 per cent, down from 3 per cent a year ago.

In a falling interest rate environment, mortgage rates linked to Sibor or SOR will also trend downwards.

Sibor tends to track the United States Federal Reserve funds rate, which has been slashed in recent weeks to 2.25 per cent as the Fed attempts to stave off an economic recession in the US.

Sibor has plummeted from 2.94 per cent to 1.31 per cent over the past year, and economists say it might not have bottomed out yet.

----------

so, your interest rate is lower now?

strange, i thought some people got it higher, and find it difficult to get the loan from the banks.

weird.