(May 21): Singapore is just a whisker away from joining the global negative-rate club.

The nation’s overnight borrowing rate was less than two basis points above zero on Tuesday, down from the year’s high of 1.68% in January. It has never gone negative before based on central bank data compiled by Bloomberg.

The plunge in the benchmark rate comes as the Monetary Authority of Singapore promised to provide sufficient liquidity in the financial system to cope with the virus-induced crunch. As the MAS doesn’t set rates, but instead manages the currency against major trading partners as a policy tool, the city state’s borrowing costs also tend to track U.S.’s benchmark.

The close relationship between the borrowing costs of both countries may well drive Singapore’s interest rate below zero as speculation mounts over the possibility of negative rates in the U.S., according to Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore.

interest rates

The drop in money-market rates may be a “possible by-product” of MAS operations that are meant to ensure sufficient liquidity, but is certainly not the intent, he added. Any decline into negative terrain will be short-lived, he said.

Singapore’s one-month swap rate, a benchmark borrowing cost for offshore investors, is also about two basis points above zero. That too has plunged from a high of 1.64% in February as speculation of U.S. negative rate policy drove down borrowing costs in the country. The swap rate is computed based on the London interbank offered rate for the dollar as well as currency forwards.