Investing Updates: Commentary: More uncertainty for Singapore economy after US interest rates cut

Source:

https://www.channelnewsasia.com/commentary/us-fed-cut-interest-rates-singapore-inflation-economy-5385076

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Singapore’s domestic interest rates have fallen sharply, with the three-month compounded SORA dropping to 1.44 per cent this year, about half of where it should be relative to US policy rates. This divergence reflects strong capital inflows and investor demand for Singapore as a safe haven, buoyed by geopolitical uncertainty and trade risks. Equity returns have also outpaced global benchmarks, adding to abundant liquidity and suppressing borrowing costs.

While the US Federal Reserve cut rates in September and signalled further reductions, local rates may not fall much further. Still, the lower-for-longer environment brings relief to households and businesses. Mortgage rates have declined from peaks of 4.5 per cent in 2022 to below 2.5 per cent, easing repayment burdens and boosting disposable income. Rising asset values also support consumption, though savers may feel the squeeze as deposit rates fall.

For companies, cheaper borrowing encourages expansion, especially in trade-related sectors that are front-loading exports ahead of potential US tariffs. Construction firms and larger corporates benefit most, though SMEs may struggle to access lower rates due to collateral and credit constraints.

Despite these positives, Singapore’s economic outlook remains clouded by external risks. The US faces slowing job growth, sticky inflation, and fears of stagflation, while China remains in deflation. Trade tensions, particularly tariff changes under US President Donald Trump, threaten global demand and complicate business planning.

Domestically, policymakers have expanded financing support and slowed currency appreciation to cushion the economy. However, Singapore’s growth momentum is expected to moderate, with 2026 posing greater uncertainties. Lower interest rates ease short-term strains, but global developments will ultimately shape the city-state’s trajectory.