What is SORA rates

The Singapore Overnight Rate Average (SORA) is an interest rate benchmark introduced by the Monetary Authority of Singapore (MAS) to replace the older benchmarks such as the Singapore Interbank Offered Rate (SIBOR) and the Singapore Dollar Swap Offer Rate (SOR).

Calculation and Basis

SORA is calculated based on the actual transactions in the unsecured overnight interbank market in Singapore. It reflects the volume-weighted average rate of these transactions, which are conducted between 8am and 6.15pm. This backward-looking approach makes SORA less volatile and less susceptible to market manipulations compared to forward-looking rates like SIBOR and SOR.

Types of SORA Rates

There are several compounded SORA rates, including:

• 1-month SORA: This rate represents the average rate over a one-month period and is typically used for shorter-term loans or financial products that reset or adjust monthly.
• 3-month SORA: This rate is averaged over a three-month period and is commonly used for longer-term loans or financial products that reset or adjust every three months. It is generally less volatile than the 1-month SORA.
• 6-month SORA: Although less commonly used, this rate averages over a six-month period and is the least volatile among the three.

Impact on Home Loans

SORA rates are used to price floating-rate housing loans in Singapore. Homebuyers can choose between different SORA rates, such as the 1-month or 3-month compounded rates, depending on their preference for stability and the frequency of interest rate adjustments. For instance, during periods of rising interest rates, a 3-month SORA might be preferred for its temporary fixed-rate effect, while a 1-month SORA might be preferred during periods of declining interest rates for quicker adjustments.

Replacement of SIBOR and SOR

SORA has been introduced as part of a global reform to improve the robustness and integrity of financial benchmarks, following the scandals associated with the London Interbank Offered Rate (LIBOR). By 2024, SIBOR will be completely phased out in favor of SORA.

Factors Affecting SORA Rates

SORA rates are influenced by various factors, including Singapore's economic outlook, the volume of eligible transactions, and the credit profiles of the reporting banks. The rates can fluctuate based on economic conditions such as inflation and recession.