DBS See Next RBI Decision as Close Call

DBS write on yesterday's RBI decision:

• Policymakers were non-committal on liquidity support despite upcoming TLTROs/ LTRO maturities, as a likely squeeze is expected to be offset by a return in FX flows and government spending. While durable injections are unlikely, a deficit balance might attract short-term relief by way of VRR repo operations.
• While Wed’s remarks hurt hopes for a pause in early-April, the direction has turned more data-dependent. Accounting for a lag in policy action, transmission and pass through to the real economy, the next rate decision will be a close call. With quarterly inflation likely to undershoot the official projection in the quarter ahead, our baseline view is for the MPC to lean towards a pause in April.
• On fiscal, they write that the FY24 Budget was neutral for monetary policy, in terms of near-term inflation and macro stability. Depending on demand-supply dynamics in the debt market next year, the central bank might participate to backstop bonds in case of volatile yield moves. DBS' forecasts lean towards a rise in risk-free 2Y and 10Y yields in the year ahead.