DBS Raises Singapore Dollar Rate Forecasts With SORA Expected to Reach 1.5% Next Year
Since the United States announced its Liberation Day tariffs in April last year, investors seeking to diversify away from the US dollar had driven expectations that Singapore dollar interest rates would stay low for an extended period. Analysts now believe a more detailed reading is warranted, and have raised their Singapore dollar rate forecasts. DBS expects the three-month SORA-OIS to reach 1.4 per cent in 2026 and 1.5 per cent next year.
3M SORA-OIS 2026
3M SORA-OIS 2027
SORA High on 18 Aug
August Average Fixing
Why DBS Revised Its View
DBS Bank senior rates strategist Eugene Leow said in a report released on Tuesday, 25 August, that although US economic data has softened, the market is still positioned for the Federal Reserve to tighten monetary policy. In Singapore, as credit demand recovers and the Singapore dollar loan-to-deposit ratio rises correspondingly, liquidity appears to have tightened slightly.
In addition, front-end Singapore dollar rates, namely Monetary Authority of Singapore bills and Treasury bills, have risen. At the same time, as investors grow concerned about excessively low Singapore Government Securities yields, back-end Singapore dollar rates have also risen correspondingly.
According to DBS estimates, the three-month Singapore Overnight Rate Average overnight index swap will reach 1.4 per cent in 2026 and is expected to reach 1.5 per cent next year. The two-year government bond yield is projected at 1.8 per cent this year, rising to 2 per cent next year. The 10-year government bond is expected to reach 2.4 per cent this year and rise to 2.5 per cent next year.
OCBC Expects a Non-Linear Path
Separately, OCBC Bank group research released a report on Tuesday noting that SORA’s recent trend is consistent with expectations of a bias towards the upside, though the rise is not linear.
SORA touched a high of 1.4968 per cent on 18 August, while the fixing rate on Monday, 24 August, was 1.3605 per cent. So far this month, the average SORA fixing rate is 1.27 per cent, higher than July’s 1.16 per cent.
From August to date, the Singapore dollar overnight index swap has lagged the US dollar overnight index swap, with the spread between the two narrowing by two to nine basis points. The narrowing has been more pronounced in the one-year and two-year tenors, because short-term rates are catching up.
OCBC head of foreign exchange and rates strategy Frances Cheung said the bank’s forecast assumes Singapore dollar interest rates will normalise upward, and that the spread between Singapore dollar and US dollar rates will also normalise. OCBC expects the next target levels for the Singapore dollar one-year and two-year overnight index swaps to be 1.55 per cent and 1.75 per cent respectively, with the upward pattern remaining non-linear.
Frequently Asked Questions
What is SORA and why does it matter for home loans?
SORA, the Singapore Overnight Rate Average, is the benchmark that most Singapore floating-rate home loans are priced against. When SORA rises, monthly repayments on floating-rate packages increase accordingly. The average SORA fixing rate in August was 1.27 per cent, up from 1.16 per cent in July.
What are the latest SORA forecasts?
DBS estimates the three-month SORA overnight index swap will reach 1.4 per cent in 2026 and 1.5 per cent next year. OCBC expects the next target levels for the one-year and two-year Singapore dollar overnight index swaps to be 1.55 per cent and 1.75 per cent respectively, though it cautions the upward path will not be linear.
Why are Singapore dollar rates rising?
DBS points to recovering credit demand and a rising Singapore dollar loan-to-deposit ratio tightening liquidity slightly, alongside higher front-end rates on MAS bills and Treasury bills. Back-end rates have also risen as investors grow concerned about excessively low Singapore Government Securities yields. Markets also remain positioned for the Federal Reserve to tighten.
Is your mortgage on a floating rate?
If SORA drifts towards 1.5 per cent next year, floating packages will feel it. If your lock-in ends soon, it is worth planning now rather than reacting later.