FED funds rate estimates
Will FED funds rate peak by year-end?
- The latest market estimates for FED funds rate (FFR) shows 7 to 8 more 25bps rate hikes by 1Q23 followed by 2 x 25bps rate cut in 2H23 as US recession concerns grow
- Estimates imply FFR to reach a high of 3.5% by 1Q23, and retreating to 2.9% by end-23
- DBS economist currently expects FFR to peak at 3.5% in 4Q22 and hold steady through 2023
- Local investors to scrutinize the upcoming 2Q results season to access the impact of inflation and rising rates on corporate earnings
- Singapore’s GDP growth (DBS forecast: 2022F: +3.5% y-o-y) may slow but recession is not a base case scenario
- With STI trading near 11.7xX (-1.5SD) 12-mth fwd PE, we maintain our bias for a July rebound led by banks (UOB and OCBC)
- Singapore Banks are actively repricing loans and improved NIM is likely to come through in 2HFY22F
- Unlike previous cycles, Singapore Banks have larger provision buffers this round
