The Current Situation: Rising Tensions, Rising Oil Prices

The ongoing geopolitical tensions between United States and Iran have pushed global energy markets into a state of uncertainty. With concerns over potential disruptions in key supply routes such as the Strait of Hormuz, oil prices have surged towards the US$100 per barrel mark.

This development is significant not just for global trade, but for inflation expectations worldwide. Oil remains a core input cost across transportation, logistics, manufacturing, and food production. When oil prices rise sharply, these higher costs are eventually passed on to consumers, resulting in sustained inflationary pressure.

At this point, what appears to be a geopolitical conflict begins to directly influence monetary policy decisions and by extension, mortgage rates.

How Rising Oil Prices Influence US Interest Rate Decisions

The Federal Reserve is tasked with maintaining price stability while supporting economic growth. However, rising oil prices complicate this balance.

Higher energy costs contribute to inflation, and persistent inflation reduces the likelihood of interest rate cuts. In fact, if inflation proves to be more stubborn than expected, the Federal Reserve may delay easing or even maintain a higher-for-longer interest rate stance.

At the same time, geopolitical uncertainty may weigh on global growth. This creates a tension between controlling inflation and supporting the economy. In such situations, central banks tend to take a cautious approach, prioritising inflation control until there is clear evidence of stability.

The key takeaway is that rising oil prices reduce the probability of aggressive rate cuts and may even reinforce expectations of sustained or higher interest rates.

Why Singapore Interest Rates Are Affected

Although Singapore does not directly set interest rates in the same way as the US, its financial system is deeply connected to global markets. The Monetary Authority of Singapore manages monetary policy through the exchange rate rather than domestic interest rates. However, local interest rates are still heavily influenced by global liquidity and funding conditions.

When US interest rates remain elevated or are expected to rise, global capital flows adjust accordingly. Singapore, as an open financial hub, experiences these shifts through its banking system. This affects benchmarks such as SORA, which in turn influences mortgage pricing.

As a result, even without direct policy changes locally, expectations set by the US Federal Reserve will continue to shape Singapore’s interest rate environment.

What We Are Seeing in Singapore Today

The current mortgage landscape in Singapore reflects a transition phase. Floating rates remain relatively low for now, with 1-month and 3-month SORA hovering around 1.00% to 1.08%. After adding typical bank spreads, effective floating rates are still in the range of approximately 1.25% to 1.40%.

However, the more telling movement is in fixed rates. Local banks have begun increasing their fixed-rate packages, with 2-year fixed rates now in the range of 1.60% to 1.70%. Foreign banks remain slightly more competitive at around 1.45% to 1.50%, but the overall direction is clearly upward.

More importantly, several banks have started removing 3-year fixed packages altogether, while others that still offer them are repricing upwards. This is not coincidental. Banks typically adjust fixed rates ahead of actual market movements, reflecting their expectations of future funding costs.

In other words, fixed rates are often a forward indicator of where interest rates are heading.

Are We at the Bottom of the Rate Cycle?

Based on current developments, there is a strong indication that interest rates may have already reached their cyclical bottom. The recent adjustments by banks suggest that they are positioning themselves for a higher-rate environment in the near future.

The surge in oil prices adds another layer of pressure, increasing the risk of persistent inflation. This makes it less likely for global central banks to adopt an aggressive rate-cutting stance in the short term.

While rates today remain relatively low compared to the post-COVID peak, the direction of movement appears to be shifting. The market is gradually transitioning from a low-rate environment to one that is more uncertain and potentially upward trending.

My Advice to Clients in the Current Environment

In the current market, floating rates may appear attractive due to their lower cost. However, they come with inherent exposure to future rate increases. Given the signals we are observing, from rising fixed rates to geopolitical-driven inflation risks, it is important to consider not just the present cost, but the forward outlook.

When banks begin increasing fixed rates or removing longer-term fixed packages, it is often an early indication that broader rate increases may follow in the coming months. This pattern has been observed repeatedly in previous cycles.

In this environment, I would advise clients to consider locking in a fixed rate as a risk-management strategy. The objective is not simply to secure the lowest rate today, but to hedge against uncertainty and potential increases in the near future, possibly extending into 2027.

At the same time, flexibility remains important. Choosing a fixed-rate package that allows for conversion after 12 months provides a balanced approach. It offers protection against rising rates while retaining the ability to review and adjust the loan strategy if market conditions change.

Conclusion

The US–Iran conflict and the resulting surge in oil prices are reshaping global inflation expectations and influencing central bank decisions. These developments are already being reflected in Singapore’s mortgage market, particularly through rising fixed rates and shifting bank behaviour.

While floating rates remain lower for now, the broader signals suggest that the interest rate environment may be entering a new phase. In such conditions, a well-structured loan strategy, one that balances stability and flexibility, becomes increasingly important.

For homeowners and buyers, the focus should not be on chasing short-term savings alone, but on positioning themselves prudently for what lies ahead.

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