CNA explains: Fed rates held steady: how will this affect Singapore savers and borrowers?

SINGAPORE: Interest rates in the United States could remain unchanged because inflation has not improved enough.

US Federal Reserve Chairman Jerome Powell said it would likely take longer than previously expected to gain the “increased confidence” needed to begin cutting rates.

Singapore interest rates are determined by global rates and foreign exchange market expectations. That means broadly following the direction of other central banks, especially the US Federal Reserve.

So, will savings account interest rates stay high?

Not necessarily, according to experts.

UOB and Standard Chartered Bank have already reduced interest rates on their flagship savings accounts.

Banks pay interest to those who deposit funds with them and earn interest income from those who borrow money from them.

Some banks have more money than their customers want to borrow, which means they don’t earn much interest income.

“They are struggling to lend all this money, because real estate transactions have slowed down,” said Alfred Chia, chief executive of financial advisory SingCapital.

“At the same time, they have to pay high interest.”

So banks that lower interest rates may be trying to cut costs.

And as rates in the United States stay high for longer, banks could continue to face the problem of having more funds than they can lend, Chia said.

But for UOB specifically, the decision to cut rates may not be driven by Fed or market expectations, said Glenn Thum, senior research analyst at Phillip Securities Research.

Instead, it may be that the bank raised rates “too aggressively at first,” he said.