It was a nervous week for investors worldwide as they kept a close watch on the United States Federal Reserve's regular meeting on monetary policy.
Punters here also kept their eyes peeled for signs of how their stocks and other investments such as gold would perform.
Much hinged on the Federal Open Market Committee's (FOMC) language, in particular, whether it would stick with its pledge to keep interest rates low for a "considerable time".
The Fed did not disappoint the market in this regard, keeping the key phrase.
But crucially, it indicated that when interest rates do increase, they would probably be raised at a faster rate than what it had forecast in June.
Policymakers forecast that the benchmark borrowing rates at the end of next year would be 1.375 per cent, up from June's estimate of 1.125 per cent.
That is a significant jump from the current levels of between zero per cent and 0.25 per cent.
The Fed also said it will end its third round of quantitative easing (QE3), or stimulus measures, next month if the economy continues to recover, unchanged from its previous stance.
Analysts note that local interest rates, such as the Singapore Interbank Offered Rate (Sibor), are quite strongly linked to US interest rates.
With many economists expecting the Fed to possibly start raising interest rates by the middle of next year, local interest rates and borrowing costs will inevitably rise.
OCBC head of treasury research and strategy Selena Ling said: "For domestic short-term interest rates, the three-month Sibor has remained very well-behaved post-FOMC, suggesting there is no real impact as yet.
"Going into year-end and into 2015, we expect that Singapore dollar short-term interest rates may start to feel the modest gravity pull as the US dollar interest rate cycle turns."
Many home loans are pegged to Sibor, which stands at around 0.4 per cent now, so any upturn in interest rates could mean home buyers having to fork out more.
Mr Kelvin Tay, regional chief investment officer for Southern Asia-Pacific at UBS Wealth Management, expects interest rates to trend upwards, but in a gradual and incremental manner.
"The impact on mortgages is likely to be muted as affordability is unlikely to be a major impediment in the near term for most Singaporean households.
"Over the next 12 months, we believe the supply of apartments and subsequent increase in the vacancy rate is likely to have a bigger impact on the Singapore residential property market than the threat from higher interest rates."
The impact of the Fed decision on stock markets is less clear because of the mixed signals it sent on keeping rates low for a long time, but then likely hiking them at a faster pace when it starts.
QE3 and the era of low interest rates have been a key factor driving the global stock market rally in recent times, including in Singapore.
The Singapore Exchange found that over the roughly two-year period of QE3, the Straits Times Index (STI) generated a total return of 15.3 per cent.
As Singapore shares historically take their lead from Wall Street, the continued setting of all-time highs on the Dow Jones Industrial Average over the past week should bode well for stocks.
"As seen from the recent price actions post the Fed statement, the market has reacted positively to the news," said OCBC Investment Research head Carmen Lee.
UBS' Mr Tay noted that while banks here should benefit from higher interest rates owing to improved net interest margins, the Singapore export sector such as the electronics industry is still hampered by weak growth.
"The overall impact from the FOMC statement is likely to be neutral, with the local market likely to take its cue from the US, but unlikely to outperform its regional peers," he said.
Gold, meanwhile, has taken a tumble as it traditionally shares an inverse relationship with the US dollar.
Eventual interest rate hikes mean greater demand for the US dollar as investors seek higher returns. This, in turn, makes gold less attractive as it is a non-interest-bearing asset. It also has diminished appeal as a hedge or safe-haven asset against a weak US dollar. The yellow metal dropped to its eight-month low, to around US$1,277.80 an ounce.
Phillip Futures investment analyst Howie Lee noted: "After projections of the FOMC showed an increased amount of hawkishness among Fed officials, gold took a quick plunge.
"The direction of the Fed is well and truly evident, and any form of good economic data will be seen as a sign of further hawkishness among Fed officials."
This article was first published on Sep 21, 2014.
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