RHB’s eonomists and strategists point to possible higher US inflation because of immigration curbs, the capex boom, fiscal dominance, and AI bottlenecks. These “could force the Fed to be more aggressive and drive up bond yields.”
Maybank Securities’ regional economics team is forecasting another 25bps hike for Indonesia and the Philippines in the second half following a +100bps in Indonesia and +50bps in the Philippines.
However, RHB says “the Taylor Rule model underlines no Fed Funds Rate (FFR) move in 2026”. (The Taylor Rule uses a formula for a higher FFR when inflation is above target and a lower rate if inflation is below target, with the output gap as a variable in the formula. If real GDP growth is above a target, that would dictate a higher interest rate, while growth short of the mark would serve to lower it.)
Firmer interest rates bode well for DBS. In a results briefing back on Feb 9, DBS’s group CFO Chng Sok Hui had said her estimate is that net interest income rises by $14 million a year per basis point increase for the SGD book, and the impact will be minus $4 million per basis point rise for the USD book.
See also: UBS initiates coverage on JustCo with a 12-month price target of $1.18
During the week of June 29-July 3, the local banks made new highs. UOB, which had lagged DBS and OCBC based on year-to-date gains, broke above $40. Year-to-date, DBS has gained 18.4%, OCBC 29% and UOB 14.8%.
Some market observers view the STI as an index of one since DBS has an outsized impact on the local market.
Whither the STI? By the looks of it, progressively higher from current levels. It ended at 5,244 on July 3, up 53 points week-on-week. The next upside is 5,740.
