In this article, we’ll break down what SIBOR is, how it’s calculated, and why it’s so significant in the financial market.
Whether you’re a first-time borrower or simply curious about the world of finance, this guide will provide you with the essential knowledge to navigate the world of interest rates and make informed decisions.
Get ready to dive into the fascinating world of SIBOR and discover how it impacts your financial journey.
Key Takeaways
| Key Takeaway | Information |
|---|---|
| SIBOR Definition | SIBOR is the interest rate at which banks in Singapore borrow funds from each other in the interbank SGD cash market. |
| SIBOR Calculation | SIBOR is calculated based on the average rate at which banks offer to lend money to each other over various periods, ranging from overnight to 12 months. |
| Importance of SIBOR | SIBOR is widely used in Singapore as a reference rate for loans and financial products. It provides stability to the market, reflects the health of the financial sector, and helps borrowers and lenders plan for the future. |
| SIBOR Historical Trend | SIBOR has been relatively stable over time but experienced fluctuations in response to economic conditions. During the global financial crisis, rates increased due to higher demand for liquidity and decreased supply of funds. |
| Factors Influencing SIBOR | Factors that influence SIBOR rates include central bank policy changes, foreign exchange rate fluctuations, market liquidity changes, global economic conditions, risk appetite of investors, and financial stability of banks. |
| Impact of SIBOR on Borrowers and Lenders | Changes in SIBOR rates can affect the interest rates on loans for borrowers and impact the spread between borrowing and lending rates for lenders, thus affecting profitability. |
| Interbank Market Players | The interbank market involves banks, investment firms, hedge funds, and other market participants, but banks are the primary players responsible for most transactions. |
| Interbank Market Transactions | Interbank market transactions include loans, deposits, and foreign exchange trading, which can occur on various bases such as overnight, one week, one month, or longer periods. |
| Role of the Association of Banks in Singapore (ABS) | ABS selects the banks that participate in the SIBOR benchmark rate calculation, monitors benchmark integrity, and ensures accuracy and reliability. |
| SOR Definition | SOR stands for Swap Offer Rate, another benchmark rate used in Singapore based on the bid-ask spread of the SGD/USD currency pair in the foreign exchange market. |
| Differences between SOR and SIBOR | SIBOR is based on interbank borrowing and lending in SGD, while SOR is based on the exchange rate between SGD and USD. SIBOR is primarily used for SGD-denominated products, while SOR is used for foreign currency products. |
| Transition from SIBOR to SORA | SORA (Singapore Overnight Rate Average) is a new benchmark rate intended to replace SIBOR. Loans and products benchmarked to SIBOR will need to transition to SORA, requiring updates to systems and processes. |
| Benefits of Using SORA | Using SORA as a benchmark provides greater transparency, improved accuracy, reduced manipulation risk, and a more accurate reflection of market conditions based on actual transaction data. |
| Compounded SORA Rate | The compounded SORA rate is a benchmark rate calculated based on the compounded daily rate of overnight borrowing and lending in the interbank SGD cash market over a specified period. |
| Role of MAS in Regulating Benchmarks | MAS (Monetary Authority of Singapore) is responsible for regulating interest rate benchmarks, ensuring accuracy, reliability, and transparency, and setting guidelines for their calculation and publication. |
| Comparison of SIBOR and SORA | SIBOR is a forward-looking rate based on expected lending rates, while SORA is a backward-looking rate based on past transactions. SIBOR is unsecured, while SORA is volume-weighted and based on overnight interbank transactions. |
| Factors to Consider for Home Loans | SIBOR is a key factor affecting home loan interest rates. Other factors include loan type, length, down payment, credit score, and loan package stability. |
Introduction to the SIBOR Rate
When it comes to interest rate benchmarks in Singapore, one of the most well-known is the Singapore Interbank Offered Rate, or SIBOR.
This important benchmark plays a major role in the financial market, particularly in the area of loan packages and housing loans.
Â
What is SIBOR?
SIBOR is the rate at which banks in Singapore borrow funds from each other in the interbank SGD cash market.
It is essentially the interest rate that banks charge one another for short-term borrowing and lending of funds in Singapore dollars.
How is SIBOR Calculated?
SIBOR is calculated based on the average rate at which banks offer to lend money to each other over various periods, ranging from overnight to 12 months.
The calculation is done on a daily basis, based on rates that are submitted by a panel of 20 banks selected by the Association of Banks in Singapore (ABS).
Why is SIBOR an Important Benchmark?
SIBOR is an important benchmark for a number of reasons.
Firstly, it is widely used in Singapore as a reference rate for loans and other financial products.
Secondly, SIBOR is a stable benchmark that changes relatively slowly, which provides stability to the market and makes it easier for borrowers and lenders to plan for the future.
Finally, because SIBOR reflects the conditions of the interbank market, it is a good indicator of the overall health of the financial sector in Singapore.
Exploring the Historical Data of SIBOR and Its Significance
In order to understand the significance of the SIBOR rate, it is helpful to look at its historical trend and the factors that influence it.
What is the Historical Trend of SIBOR Rates?
Historically, the SIBOR rate has been relatively stable, although it has experienced fluctuations in response to changes in economic conditions both in Singapore and globally.
For example, during the global financial crisis of 2008-2009, SIBOR rates increased dramatically due to higher demand for liquidity and a decrease in the supply of funds.
What Factors Influence SIBOR Rates?
Several factors can influence SIBOR rates, including changes in central bank policy, fluctuations in foreign exchange rates, and changes in market liquidity.
Additionally, global economic conditions can also affect SIBOR rates, as can changes in the risk appetite of investors and the financial stability of individual banks.
How do SIBOR Rates Impact Borrowers and
Lenders?
SIBOR rates can have a significant impact on both borrowers and lenders.
For borrowers, changes in SIBOR rates can affect the interest rates on their loans, which can increase or decrease their monthly payments.
For lenders, changes in SIBOR rates can impact the spread between their borrowing and lending rates, which can in turn affect their profitability.
The Interbank Market: Key Players and Transactions
Who are the Key Players in the Interbank Market?
The interbank market is made up of many financial institutions, including banks, investment firms, hedge funds, and other market participants.
Banks are the primary players in the interbank market and are responsible for the majority of transactions that take place.
What Types of Transactions Occur in the Interbank Market?
There are several types of transactions that occur in the interbank market, including loans, deposits, and foreign exchange trading.
These transactions can occur on several different bases, including overnight, one week, one month, and longer periods.
What is the Role of the Association of Banks in Singapore?
The Association of Banks in Singapore (ABS) plays an important role in regulating the interbank market and ensuring that it operates effectively and efficiently.
The ABS is responsible for selecting the banks that participate in the SIBOR benchmark rate calculation, as well as monitoring the integrity of the benchmark and ensuring that it is accurate and reliable.
Understanding SOR and Its Relationship with SIBOR
What is SOR?
SOR stands for Swap Offer Rate, which is another benchmark interest rate that is used in Singapore.
SOR is calculated based on the bid-ask spread of the Singapore dollar-United States dollar (SGD/USD) currency pair in the foreign exchange market.
How is SOR Different from SIBOR?
While SIBOR is based on interbank borrowing and lending in Singapore dollars, SOR is based on the exchange rate between the Singapore dollar and the US dollar.
As a result, while SIBOR is primarily used for SGD-denominated loans and financial products, SOR is primarily used for products denominated in foreign currencies.
Why is SOR Relevant in Singapore?
SOR is relevant in Singapore because it provides an additional benchmark interest rate that can be used for loans and other financial products denominated in foreign currencies.
Additionally, because the exchange rate between the Singapore dollar and the US dollar is often correlated with global economic conditions, SOR can be a useful indicator of the health of the global financial market.
The Transition from SIBOR to SORA: Implications and Benefits
What is SORA, and how is it Different from SIBOR?
SORA stands for Singapore Overnight Rate Average, a new benchmark interest rate intended to replace SIBOR by 2023.
Unlike SIBOR, which is based on interbank borrowing and lending rates, SORA is based on actual transaction data from the overnight interbank SGD cash market.
What are the Implications of the Transition from SIBOR to
SORA?
The transition from SIBOR to SORA will have significant implications for Singapore’s financial market and borrowers and lenders.
One of the biggest implications is that loans and other financial products that are currently benchmarked to SIBOR will need to transition to using SORA as their benchmark rate.
This will require financial institutions to update their systems and processes to be able to use the new benchmark rate.
What are the Benefits of Using SORA as a Benchmark?
There are several potential benefits of using SORA as a benchmark rate, including greater transparency, improved accuracy, and a reduced risk of manipulation.
Additionally, because SORA is based on actual transaction data, it reflects the true rate of borrowing and lending in the overnight interbank SGD cash market, which provides a more accurate reflection of market conditions than SIBOR.
Analyzing the Compounded SORA Rate: A Reliable Benchmark
What is the Compounded SORA Rate?
The compounded SORA rate is a benchmark interest rate that is calculated based on the compounded daily rate of overnight borrowing and lending in the interbank SGD cash market over a specified period of time.
How is the Compounded SORA Rate Calculated?
The compounded SORA rate is calculated by taking the volume-weighted average rate of all overnight transactions in the interbank SGD cash market and compounding them over a specified period of time, such as 3 months.
Why is the Compounded SORA Rate a Reliable Benchmark?
The compounded SORA rate is considered a reliable benchmark rate because it is based on actual transaction data and reflects the true rate of borrowing and lending in the interbank SGD cash market.
Additionally, because it is a compounded rate, it provides a more accurate reflection of market conditions than simple interest rate calculations.
The Role of MAS in Regulating Interest Rate Benchmarks
What is MAS?
The Monetary Authority of Singapore (MAS) is the central bank of Singapore and is responsible for overseeing the financial sector in the country.
The MAS is also responsible for setting and regulating interest rate benchmarks in Singapore.
What is the Role of MAS in Regulating Interest Rate
Benchmarks?
The MAS plays an important role in regulating interest rate benchmarks in Singapore by ensuring that they are accurate, reliable, and transparent.
The MAS also works closely with the ABS to monitor the calculation and publication of benchmark rates, as well as to investigate and prevent any attempts to manipulate the rates.
How does MAS Ensure the Integrity of Interest Rate
Benchmarks?
The MAS ensures the integrity of interest rate benchmarks in a number of ways, including setting guidelines for the calculation and publication of benchmark rates, requiring banks to follow specified methodologies for submitting their rate submissions and conducting regular audits and reviews of the benchmark rates to ensure their accuracy and reliability.
SIBOR vs. SORA: A Comparison of Singapore’s Key Reference Rates
Understanding SIBOR and SORA
SIBOR is a key interest rate benchmark used in Singapore.
It represents the average interest rate at which banks in Singapore lend money to one another on an unsecured overnight basis.
On the other hand, the Singapore Overnight Rate Average, or SORA, is a newer reference rate that was launched in 2019.
SORA is based on the volume-weighted average of all overnight interbank SGD cash market transactions in Singapore, and it is calculated using backward-looking overnight rates and forward-looking term rates.
The Differences Between SIBOR and SORA
One of the biggest differences between SIBOR and SORA is how they are calculated.
SIBOR is a forward-looking rate, which means that it represents the rate at which banks are expected to lend to each other in the future.
SORA, on the other hand, is a backward-looking rate that is based on past transactions.
Another critical difference between the two rates is that SORA is a volume-weighted average rate of borrowing transactions in the unsecured overnight interbank SGD cash market in Singapore, while SIBOR is the rate at which one bank can borrow funds from another bank on a wholesale, unsecured basis.
Which Rate is More Suitable for Your Loan?
Deciding which rate is more suitable for your loan depends on a number of factors, including the lock-in period of the loan, the conversion or reset period, and the business days used to compute interest.
Generally, if you have a loan with a longer lock-in period or conversion period, SIBOR may be a more suitable choice as it is a forward-looking rate.
However, if your loan has a reset period of fewer than three months, 3-month Compounded SORA may be a better choice as it is a backward-looking rate.
The Impact of SIBOR on Home Loans: Factors to Consider
Introduction to Home Loans
For most people, buying a home is the biggest purchase they will ever make.
Home loans are designed to help make this purchase more affordable by allowing buyers to spread the cost over many years.
When taking out a home loan, it’s important to consider all the factors that can affect the loan interest rates, including SIBOR rates.
How SIBOR Affects Home Loans
SIBOR is a key factor that affects the interest rates of home loans.
Banks often use SIBOR as a reference rate for home loans, and the interest rate charged on the loan is often a margin above the SIBOR rate.
This means that when the SIBOR rate goes up, so does the interest rate on the home loan.
However, it’s worth noting that banks may also offer loan packages that are pegged to SIBOR.
This means that the interest rate on the loan will stay the same as long as the SIBOR rate stays within a certain range.
This can be a good option for borrowers who want more certainty in their payments, as they can avoid fluctuations in the SIBOR rate.
Other Factors to Consider When Choosing a Home Loan
While SIBOR is an important factor to consider when choosing a home loan, it’s not the only one.
Other factors that can affect the interest rate include the type and length of the loan, the down payment, and the borrower’s credit score.
It’s essential to take all these factors into account when choosing a home loan in order to get the most favorable interest rates possible.
The Pegging of SIBOR and SORA: Exploring Loan Packages
What is a Pegged Loan Package?
A pegged loan package is a type of loan package where the interest rate is linked to a reference rate, such as SIBOR or SORA.
This means that the interest rate charged on the loan will rise and fall in line with the reference rate.
Examining the Different Types of Pegged Loan Packages
There are several different types of pegged loan packages available in Singapore.
One common type is the SIBOR-SORA Conversion Package, which allows borrowers to convert their existing SIBOR-pegged loan to a SORA-pegged loan.
Other types include fixed deposit rate home loans, board rate home loans, and rate package home loans.
Advantages and Disadvantages of a Pegged Loan Package
One of the main advantages of a pegged loan package is that it can offer more stability in interest payments.
Borrowers can avoid fluctuations in the reference rate by choosing a loan package that is pegged to a certain rate range.
However, there are also disadvantages to consider, such as the potential for higher interest rates if the reference rate rises significantly, and the possibility of conversion fees if the borrower chooses to convert their loan to a different reference rate.
Historical Trends: Examining SIBOR’s Fluctuations Since 1998
A Brief History of SIBOR
SIBOR has been a key reference rate in Singapore since the late 1980s.
The rate is published daily by the Association of Banks in Singapore (ABS), and it is based on the average borrowing rates submitted by a panel of banks.
Factors That Influence SIBOR Rates
There are many factors that can affect SIBOR rates, including changes in the money supply, changes in the demand for credit, and changes in the global economic climate.
In addition, regulatory changes can also affect SIBOR rates, as was the case when the Monetary Authority of Singapore (MAS) announced plans to phase out SOR in favour of SORA.
An Overview of SIBOR Rates Since 1998
Since its inception, SIBOR rates have fluctuated considerably.
In the late 1990s, rates hovered around 2-3%.
During the global financial crisis in 2008, rates spiked to nearly 4%, before falling again in 2009.
Since then, rates have remained relatively stable at around 1-2%, with some fluctuations due to changes in economic conditions and regulatory changes.
SIBOR Rate Calculation: Methodologies and Factors Influencing Rates
Methods Used to Calculate SIBOR Rates
SIBOR rates are calculated using a volume-weighted average rate of borrowing transactions between banks on an unsecured basis.
The rate is calculated daily based on rates submitted by a panel of banks.
The Factors That Affect SIBOR Rates
There are many factors that can affect SIBOR rates.
One key factor is changes in the supply and demand for credit in the Singaporean economy.
Other factors include changes in the global economic climate, changes in the monetary policy of the Monetary Authority of Singapore (MAS), and changes in the regulatory environment.
How SIBOR Rates Impact Other Interest Rates
Since SIBOR is a key reference rate in Singapore, changes in SIBOR rates can have a ripple effect on other interest rates.
For example, if SIBOR rates rise, banks may increase the interest rates on their loans to match the higher reference rate.
This can, in turn, impact the borrowing costs of businesses and consumers, which can have a broader impact on the economy as a whole.
SIBOR is a key interest rate benchmark in Singapore that affects the interest rates of many different types of loans, including home loans.
Understanding how the rate is calculated, how it differs from other reference rates, and how it can fluctuate over time is essential for borrowers who want to make informed decisions about their borrowing options.
By considering all the factors that can affect interest rates, borrowers can choose loan packages that offer the most favorable terms and rates possible.
The Pros and Cons of SIBOR-Linked Home Loans
Understanding SIBOR and How it Relates to Home Loans
SIBOR is a financial rate that is regularly reviewed and reset every three months.
It is based on the interest rates that banks offer each other and is usually pegged to loans that have floating interest rates.
In other words, if the SIBOR rates go up, the interest rate of the loan increases, and vice versa.
This can either work in your favor or against you, depending on the market conditions.
SIBOR rates are published on the Monetary Authority of Singapore (MAS) website and are widely followed by financial market participants.
Benefits and Drawbacks of SIBOR-Linked Home Loans
The most significant benefit of a SIBOR-linked home loan is that the interest rates are typically lower in the early years of the loan as compared to a fixed-rate home loan.
This enables borrowers to reduce their loan amount faster, as they will need to pay less interest in the first few years.
However, it is essential to note that as SIBOR rates increase or fluctuate at a higher frequency, the borrower’s monthly repayment amounts may vary, resulting in instability in the borrower’s financial situation.
Conversely, if SIBOR rates remain low or fall, a borrower might benefit from a lower interest rate.
Borrowers who are risk-averse may instead opt for a fixed-rate home loan, bearing in mind the tradeoff between predictable monthly repayments and stable interest rates.
How to Evaluate if SIBOR-Linked Home Loans are Right for
You
When considering whether to take on a SIBOR-linked home loan, it is essential to evaluate how the rate fluctuations may impact your financial situation.
If you have cash flow constraints and prefer a flexible repayment schedule, then a SIBOR-linked home loan may suit your needs.
However, it is crucial to view the long-term perspective, especially when float rates are volatile.
Thus, it may be prudent to create a financial plan that considers different scenarios, including extreme scenarios, and anticipate how the loan may affect your cash flow and overall financial well-being.
The Future of SIBOR: Industry-Wide Transition and Expectations for 2023
What is Happening to SIBOR in 2023 and Why?
The current SIBOR rate, which is based on banks’ interbank lending transactions, is set to be phased out gradually over the next few years and replaced with the Singapore Overnight Rate Average, or SORA.
This is because in today’s financial market, there are more credit transactions with shorter tenors and interest rates that fluctuate daily, making SIBOR less relevant.
To accommodate the transition to SORA, Mas has announced the cessation of the publication of the 1-month and 12-month SIBOR rates after end-2024 and the 6-month SIBOR and SOR rates a year later, as announced on the central bank’s website.
How Will the Transition from SIBOR to SORA Affect
Borrowers and Lenders?
The transition from SIBOR to SORA will affect both borrowers and lenders in various ways.
When SIBOR is phased out, financial market participants will have to use SORA as the new benchmark rate over time.
Borrowers should check with their financial institutions to ensure that they are updated on any changes that may come up and how interest rates on their loans will adjust as a result of the shift.
It is also wise to differentiate the differences between 3-month SIBOR and SORA rates as both are calculated differently.
This understanding will enable them to make informed decisions on their borrowing activities.
Lenders, on the other hand, will need to manage their exposure risks by adjusting their loan conversion or renewal dates appropriately.
Expert Predictions on the Future of SIBOR
Experts have differing predictions on the future of SIBOR.
Some believe that SORA will replace SIBOR completely because SORA is more representative of the current interbank market conditions in Singapore.
Some others think that SIBOR may still be used in certain types of financial products, such as interest rate swaps, as there are existing contracts linked to SIBOR.
It is also important to note that the volume-weighted average borrowing rate is a critical component of SORA, which makes it a good substitute reference rate for future financial products.
Thomson Reuters would be taking on the role of calculation agent using transaction-level data from the overnight interbank cash market in Singapore between 8 am and 6 pm.
Key Considerations for Borrowers: Maximizing the Benefits of SIBOR and SORA
How to Navigate Rate Fluctuations with SIBOR and SORA
When taking out a home loan, the timing of the loan conversion or renewal date can significantly affect the interest cost incurred.
This is because the timing of the interest rate is dependent on SIBOR or SORA floating rates, which can rise or fall over time.
To avoid any unfavorable swings in interest rates, borrowers can consider monitoring the changes in interest rates closely and negotiate with the bank for a fair rate under certain conditions.
As SORA has been touted as a more accurate reference rate than SIBOR, borrowers should also consider the pros and cons of SORA-pegged home loans and determine which loan product aligns with their financial goals.
The Differences Between 3-Month SIBOR and SORA Rates
Not all borrowers may be aware of the differences between 3-month SIBOR rates and SORA rates.
SIBOR is derived from the interbank lending transactions based on the rates offered by 16 panel of contributor banks in the top and bottom quartiles, while SORA is derived directly from a daily volume-weighted average borrowing rate on the overnight interbank cash market in Singapore.
SIBOR is calculated every three months by Thomson Reuters, while SORA is calculated on every business day by the MAS using actual transactions recorded.
Factors to Consider when Choosing Between SIBOR-Linked
and SORA-Pegged Home Loans
To choose between SIBOR-linked and SORA-pegged home loans, borrowers should generally consider factors such as their specific financial requirements, risk appetite, and their ability to weather fluctuations in interest rates.
If interest rate volatility is a significant concern, it may be suitable for borrowers to opt for SORA-pegged home loans as these rates are calculated based on a more representative volume-weighted average borrowing rate on the overnight interbank cash market in Singapore.
On the other hand, if borrowers are seeking a loan with more predictable interest payments, SIBOR-linked home loans may be the better option.
The Importance of the SIBOR and SORA Rates
Why the SIBOR and SORA Rates are Popular Reference
Rates
The SIBOR and SORA rates have been popular reference rates for a long time due to their integrity and precision, as they are derived from actual market transactions.
As a result, they are widely trusted in the financial industry and serve as a reliable benchmark for various financial products.
For instance, the rate swaps market, which is used to manage interest rate risk, and other financial instruments demand that SIBOR remain available.
The Significance of the Volume-Weighted Average
Borrowing Rate on the Interbank Cash Market
With SORA, the volume-weighted average borrowing rate on the interbank cash market in Singapore is the most significant component.
This rate is considered a fair and stable benchmark rate that reflects the short-term interest rate environment.
Its reliability and stability have led to a broad acceptance in the market, and SORA has been advocated as the alternative benchmark rate to SIBOR.
Currently, many financial institutions are using SORA as a reference rate for financial products such as loans, bonds, and derivatives.
How the Adjustment Spread Affects Borrowers on Loans
The SIBOR and SORA rates are calculated with an adjustment spread known as the Retail Adjustment Spread for SIBOR and the Average Spread for SORA.
It is the difference between the reference rate and the rate at which Singapore banks lend to customers.
This difference is essential as it indicates the profit margin that Singapore banks can earn.
While the adjustment spread is generally low, it can have a significant impact on a borrower’s loan repayment, as it adds to the overall cost of borrowing.
Conclusion
In conclusion, SIBOR is a crucial interest rate benchmark in Singapore that impacts various loan products, particularly home loans.
It is calculated based on the average rate at which banks lend money to each other in the interbank SGD cash market.
SIBOR provides stability to the financial market, acts as a reliable indicator of the sector’s health, and influences borrowers’ monthly payments and lenders’ profitability.
To delve deeper into the topic, we recommend checking out our other blog articles, such as “Understanding SOR and Its Relationship with SIBOR” and “The Transition from SIBOR to SORA: Implications and Benefits.
” These articles explore related concepts like alternative benchmarks, the significance of SORA, and the upcoming transition in interest rate benchmarks.
By expanding your knowledge, you can make well-informed decisions and stay updated on the latest developments in Singapore’s financial landscape.
Frequently Asked Questions
What is SIBOR rate?
SIBOR rate (Singapore Interbank Offered Rate) is the benchmark reference rate used by major banks in Singapore to determine the average interest rate banks charge each other for unsecured interbank lending.
It is also a key indicator for mortgage and property loans as many of them are SIBOR-linked home loans.
How does SIBOR rate affect borrowers on loans?
SIBOR rate has a direct impact on borrowers with SIBOR-linked home loans or property loans as their effective interest rate is based on the SIBOR rate.
When SIBOR rate increases or decreases, the interest rate on their loans also increases or decreases respectively, which can affect their monthly payments.
What is SORA rate?
SORA rate (Singapore Overnight Rate Average) is an alternative reference rate to SIBOR rate.
It is a 3-month compounded SORA rate based on actual transactions in the overnight unsecured interbank market in Singapore between 8Â am and 6Â pm on each business day.
How is SORA rate different from SIBOR rate?
SORA rate differs from SIBOR rate in several ways.
While SIBOR rate is based on the average bank-borrowing interest rates, SORA rate is volume-weighted and based on actual transactions in the overnight unsecured interbank market.
Additionally, SIBOR rate is a 3-month rate while SORA rate is a 3-month compounded rate.
Why is there an industry-wide transition from SIBOR to SORA?
The industry-wide transition from SIBOR to SORA is due to the global decline of LIBOR (London Interbank Offered Rate) as a benchmark reference rate.
Many countries have started replacing LIBOR with alternative reference rates, including Singapore which has chosen SORA as the alternative reference rate.
What is the SORA Conversion Package?
The SORA Conversion Package is a plan put forth by Monetary Authority of Singapore (MAS) to facilitate the transition from SIBOR to SORA.
It includes an industry-wide automatic conversion of SIBOR-linked contracts to SORA-based contracts, and an approach for conversion of legacy contracts.
Do I need to do anything if I have a SIBOR-linked home or property loan?
If you have a SIBOR-linked home or property loan, you do not need to do anything.
Your loan will automatically be converted to a SORA-pegged home loan by the end of 2024.
However, it is advisable to review the terms and conditions of your loan and consult with your bank if you have any questions or concerns.
How is the SIBOR rate determined?
Thomson Reuters calculates the SIBOR rate on behalf of The Association of Banks in Singapore by polling a panel of borrowing banks on their interbank lending rates.
The rate is calculated using the standardised adjustment method, which removes the highest and lowest rates and averages the remaining rates.
What are the benefits of using SORA rate?
The use of SORA rate provides several benefits, including a more accurate and reliable benchmark reference rate for loans and financial products, a lower risk of manipulation or rigging compared to other reference rates such as LIBOR, and a less volatile and more transparent rate compared to SIBOR rate.
What happens if the SIBOR rate is extremely high or low?
If the SIBOR rate experiences extreme surges or drops, it can lead to uncertainty and increased risk for borrowers on SIBOR-linked loans.
In such cases, borrowers may consider refinancing their property loans or negotiating with their banks to switch to another type of loan, such as fixed-rate loans.
