Archive

Peru Nears Neutral as Rates Cut to 4.25%

• BCRP cut rates by 25bp to 4.25%, approaching neutral policy as August inflation fell to 1.1% YoY, the lowest since 2018, below consensus expectations.
• The real ex-ante rate is now 2.07%, very close to the 2% neutral estimate, suggesting limited scope for further easing without overstimulating the economy.
• Global trade tensions create a medium-term downward bias for growth outlook, with a data-dependent approach maintained for future policy adjustments.

BoE QT: Pruning A Bad Policy

• The BoE’s annual Quantitative Tightening announcement in September should see it prune the targeted size, we expect by £20bn to £80bn, concentrated in the long-end.
• Fewer maturities in the year ahead would otherwise put too much pressure on active sales into a market that lacks appetite, especially with LDI demand disappearing.
• Pruning the size and duration delays costs crystallising by several billion a year, which the Chancellor will welcome, yet QT’s poor design remains an expensive fiscal disaster.

By Philip Rush

Chile: Steady Rates Amid Global Uncertainty

• Chile's policy rate was held at 4.75%, surprising no consensus forecasts amid stable activity and FX markets.
• Core inflation is higher than June projections, signalling persistent price pressures on goods and services.
• Future moves hinge on additional data. Persistent wage-driven inflation may delay any rate cuts.

Fed: Politics Vs Fundamentals

• President Trump’s current preference for rate cuts is not unconditional. Higher-order logic suggests this would not override fundamental resilience or fairly prove “TACO”.
• Political pressure is state-dependent, with the messenger mattering more than the objective truth beneath any message. Trump’s Chair will have a stronger hand.
• Brazil suffered President Lula’s pressure, but he still supported his “Golden Boy’s” turn from dovish dissent to forceful rate hikes. Fed pricing ignores the potential for change.

By Philip Rush