THE greenback's rapid climb is taking a big toll on the interest earned by US-denominated deposits here.
A check of banks' websites last Friday shows many, including the local lenders, are paying close to nothing for short- term US-denominated time deposits.
United Overseas Bank is paying zero per cent for amounts below US$50,000 (S$76,000) for a one-month deposit, while OCBC Bank is paying no interest for its call deposit for US dollars.
DBS Bank is paying zero interest for all listed amounts of US dollars for a one-week deposit. This means if you park a big sum, say US$500,000, with Singapore's largest bank in a one-week term deposit in US dollars, you would do just as well to keep the cash at home.
Money market experts say what they are seeing is 'unprecedented'. While currencies like the yen have yielded zero per cent interest, this is possibly the first time banks here have dished out zilch for US-denominated deposits.
'I have been in the market for 18 years and I have never seen such volatile movements in currencies,' said Citi Asia Pacific's managing director of global markets, Mr Lee Lung Nien.
He said the system is 'flush' with US dollars after aggressive interest rate cuts by global central banks and massive doses of liquidity injections to thaw frozen credit markets.
CIMB-GK economist Song Seng Wun said banks may not be 'needing your money' at this point as there is plenty out there, given that the cost of borrowing in interbank markets has also dipped.
Still, despite the low yield, some consumers have chosen to leave their money in US-denominated fixed deposits.
Mr Koh, an investor in his 40s, said while he is not getting much interest out of his US-dollar fixed deposit, he will keep it there to reap overall 'capital gains' from the stronger greenback.
CIMB-GK's Mr Song said of this strategy: 'He can look forward to earning on the exchange rate side.'
Last Friday, the Singapore dollar weakened to $1.5148 against the US dollar - a level not seen since September last year.
It was only in July this year that the greenback was at a record low against the Singapore dollar, at $1.3468.
Much of the local currency's fall has to do with the unfolding of global events, as investors pile into safe assets such as the greenback and yen.
The plunge in the Singdollar has created headaches for importers and Singaporeans going on holidays in the US.
Experts are baffled at the extent and speed at which the greenback has gained against currencies like the Singdollar.
After all, the United States is mired in some serious debt issues. The country's deficit has been ballooning after factoring in the costs of bank bailouts and the impact of slumping revenues.
Some economists think the Singdollar's sharp fall against the US dollar will continue for at least the next six months.
Morgan Stanley's global head of currency research, Mr Stephen Jen, sees the Singdollar weakening to $1.80 against the greenback in next year's second quarter.
He said the weakening will be partly due to an aggressive policy by the Monetary Authority of Singapore to protect the export-oriented local economy.
But both UOB economist Ho Woei Chen and OCBC's forex strategist Emmanuel Ng, believe the local currency should start to gain ground from the second half of next year.
'There'll come a point next year where markets will take a step back and say we're done buying US dollars, given that the US' fiscal bill has bloated its balance sheet,' Mr Ng said.
'By then, the likes of European Central Bank will be done with rate cuts and there should be some stabilisation of numbers. For Asia, there should be a trough on how badly exports will be affected, and at the first hint of stabilisation, some interest should come back to Asian equities and bonds,' he said.
Other experts say the recovery will not happen so soon.
'The pace of Singdollar losses will slow but not the trend,' said Societe Generale's Asia foreign exchange and rates strategist, Mr Patrick Bennett.
'A modest recovery is likely in 2010 as the global economy and hence external demand recovers.'
This article was first published in The Straits Times on November 17, 2008.
