DBS sees no more rate cuts in short-to mid term

Singaporean brokerage DBS today said the Reserve Bank is unlikely to cut rates further due to factors like the US Fed's likely tightening in December and the progress on Brexit.
It said the 0.25 per cent cut by RBI in October was a "pre-emptive" one and the central bank will not go in for another cut despite a likelihood of inflation coming to under 4 per cent levels in November.
"Further easing is not our base case as yet given the likelihood of external uncertainties, particularly the Fed in December and Brexit in the first quarter of next year," it said in a note.

Interestingly, most of the analysts have been saying Governor Urjit Patel-led Monetary Policy Committee will go in for another cut at the next review on December 6 while some have also been building a case of two more cuts.
Those pitching in favour of the cut point out to the dovish commentary from Patel and also the MPC's minutes.
DBS said there are "small odds" of a rate cut in the March quarter, pointing to the lowering of the real rate to 1.25 per cent from 1.5-2.0 per cent earlier.

It also said that RBI's decision not to commit to the 4 per cent inflation for March 2018 also leaves the MPC with "sufficient legroom" to cut rates further.

DBS also acknowledged that the inflation trajectory has remained fairly contained during the year, which has seen the September headline number coming to 4.3 per cent.
"In light of a normal monsoons, smaller rise in minimum support prices and administrative steps undertaken by the government, food inflation is likely to stay below 5 per cent this year," it added.
The brokerage also revised down its full year inflation target to 4.8 per cent from the earlier 5 per cent and added that it may climb up to 5 per cent in 2017 on GST implementation impact.