Archive

Banxico’s Cautious Pause at 7%

• Banxico held the policy rate at 7%, as expected, and signalled a data‑dependent, higher‑for‑longer stance after revising inflation forecasts upward.
• Convergence to the 3% target is delayed to Q2 2027, with core and services persistence, fiscal shocks and FX volatility key to the timing of any renewed cuts.
• Weak growth supports future easing, but Fed policy, peso moves and the inflation expectation anchor will determine how soon and how far rates can fall.

Fed: Rate Cuts Rolling Away

• Pricing for Fed rate cuts in 2026 has been trimmed by ongoing economic resilience and a fairly uncontroversial appointment of Kevin Warsh as the Fed’s next Chair.
• Mean pricing still covers two cuts, close to the BoE, despite both being on hold and some other central banks turning hawkish. Delaying cuts until mid-year isn’t enough.
• We see excess demand and inflation surviving, preventing policy easing. Trump’s Chair can sell this stability. Temporal decay of the dovish skew would also roll rate cuts away.

By Philip Rush

RBA Hikes Into Inflation's Resurgence

• The RBA hiked by 25bp to 3.85%, above some expectations, as inflation reaccelerated and is judged likely to remain above target.
• Stronger-than-expected private demand, a tight labour market and high unit labour costs raise the risk of further rate hikes if inflation stays sticky.
• Future moves are data-dependent: further tightening remains on the table, but an extended pause is possible if inflation and demand clearly ease.

HEM: Feb-26 Views & Challenges

• Policymakers have broadly signalled caution against cutting too far, feeding pricing for prolonged pauses.
• Resilient output, expanding credit, and the UK’s unbroken excess inflation problem should prevent further cuts.
• Risks from rising unemployment eased with stabilisation after a bad round of releases during December.