SGD Rates: Liquidity shifts more important for SORA than MAS tightening
SGD liquidity conditions are clearly in tight territory with the recent 6M and 1Y T-bill auctions registering cut-offs of 3.77% and 3.72% respectively. With T-bills eligible for buying across a wider investor pool (including retail), we reckon that it is arguably the best read of broad liquidity conditions. By contrast, MAS bills and the SORA can only be accessed by institutions. We had noted that the funding mix for banks has become more expensive (see here). As short-term SGD rates climb above 3%, investors are increasingly drawn to T bills (SGD 18.8bn applied for the recent two auctions) and banks are trying to keep deposits by offering higher FD rates. We suspect that retail participation has climbed significantly compared to just a few months ago when bill rates were still below 2%. Frequent bill auctions (every two weeks for the 6M bill) and in issuance amounts much larger than that of SSB also mean that the retail investor will be able to deploy funds into this instrument in size. This then leads to cascading impact unto FD rates as well as SORA. We see liquidity as a much more important driver of SORA in the short-term than MAS’s S$NEER policy. Today’s MAS tightening should have negligible impact on SGD interest rates.
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