Mortgage loans and bank interest rates are two terms that are synonymous with SIBOR and SOR. But what exactly is SORA, and how will it affect our understanding of mortgages? Singapore Dollar Swap Offer Rate (SOR), Singapore Overnight Rate Average (SORA), and Singapore Interbank Offered Rate (SIBOR) will be adopted as the primary benchmark interest rate in case of Singapore’s financial rates in the future are the three most common terms related to housing loans in Singapore. Check out the SORA rate.
The Singapore Foreign Exchange Market Committee (SFEMC) and the Association of Banks in Singapore (ABS) endorsed SORA on 30 August 2019 as a more reliable benchmark to replace SOR. As of March 2021, most major banks offered SORA as a financing option, with over S$1 billion in SORA loans disbursed to date.
SORA
According to the MAS, SORA is the daily volume-weighted average rate of unsecured (debts with no collateral backing) overnight interbank Singaporean Dollar transactions mediated in Singapore between 8 a.m. and 6.15 p.m. Next data validation, SORA is posted to the MAS website at 9 a.m.
SORA is a viable substitute for SOR since it is widely followed as a daily barometer of SGD money market conditions and is supported by a deep and liquid overnight funding market. SORA is a metric that tracks the unsecured lending rate between banks in Singapore, much like SIBOR. SORA is simpler and more open than SIBOR because it is based on the average of all interbank lending transactions rather than only those involving 20 institutions.
In favor of SORA
According to ABS, using SORA as a standard for interest rates has many advantages. These are the most critical takeaways from SORA:
The Singapore Overnight Rate Average (SORA) is a reliable interest rate benchmark that reflects everyday conditions in Singapore’s money markets by averaging the rates of unsecured overnight interbank SGD transactions mediated in Singapore.
SORA interest rates are more stable for Singapore borrowers because they do not consider fluctuations in the foreign exchange rate.
Since MAS has been publishing SORA continuously since 1 July 2005, market players have had ample opportunity to analyze and utilize the historical model trends for risk management, asset-liability pricing, and trading.
Since SIBOR is a forward-looking rate, MAS-administered and -calculated SORA is more steady and predictable (i.e., SIBOR is more unpredictable because banks can increase or drop rates without warning). Compound SORA rates, on the other hand, look into the past to predict the future, using data from interbank transactions. Check out the sora rate today Singapore.
Since forward-looking term rates are more vulnerable to market factors like quarter- or year-end volatility, SORA will be the superior long-term decision for Singapore’s financial markets.
When the SGD interest rate market is centralized around the Singapore Overseas Ratings Agency (SORA), market fragmentation will end, transparency will be maintained, customers will have an easier time comparing loan pricing, and the SGD financial sector will grow in depth and efficiency.
