The US Federal Reserve just announced the second Interest Rate Hike in 2018. And it hints at least another 2 more hikes for the later part of the year.
With the increase of interest rates by 25 basis points from the FOMC meeting yesterday, the current federal funds rate is now at 2%.
The Federal Reserve signaled it will raise rates to 2.5 percent in 2018, 3.0 percent in 2019, and 3.5 percent in 2020.
Singapore manages an exchange rate based monetary policy, pegging the Singapore Dollar to a basket of currencies, which the US Dollar is a primary component. This explains why US interest rates have a strong positive correlation with Singapore’s interest rates as seen in the chart below:
What does this mean for Real Estate Investment Trusts? (REITs)
As REITs require borrowing to develop properties, a rise in interest rates would essentially mean