Archive

HEW: Policy Under Pressure

• President Trump’s attempt to fire Governor Cook, potentially gaining a supportive majority on the Fed, raises the risk that US policy overstimulates the economy.
• Policy peers should not be pressured to mirror mistakes. The ECB faces data that keep accumulating hawkish pressures, but others are more susceptible, like the BOK.
• Non-farm payroll data provide the last hope of blocking a Fed rate cut in September. Meanwhile, a rise in EA inflation to 2.1% should help rule out another ECB rate cut.

By Philip Rush

BOK Holds at 2.50%, Signals Future Cuts

• The BOK maintains a 2.50% rate as expected, but signals continued easing bias through the first half of 2026, citing below-potential growth requiring support.
• Housing price risks in Seoul override growth concerns despite a modest GDP upgrade to 0.9%, with household debt acceleration complicating policy timing.
• An October rate cut is increasingly likely following the expected Fed move, as inflation is stable near 2% target, providing accommodation scope when financial stability permits.

ECB Easing Transmits Need To Hold Rates

• ECB rate cuts are stimulating a trend rise in lending growth to levels consistent with no change in policy, as the monetary transmission mechanism delivers the easing.
• Activity surveys are less bullish, but reflect stagnant supply-side potential that can’t be fixed by stimulating demand, which would merely stoke the inflation problem.
• Potentially inappropriate Fed easing does not raise peer pressure like fundamental US weakness would. Domestic news dominates and supports our ECB call for no change.

By Philip Rush

BSP Cuts to 5% in "Goldilocks" Zone

• BSP cut rates by 25bp to 5.0%, meeting consensus expectations and bringing total easing to 150bp since the cycle began one year ago.
• A further 25bp cut is likely by December, targeting a terminal rate of 4.75% as inflation remains well below the 2-4% target range.
• US tariff uncertainty weighs on outlook, but the BSP signals a slightly less dovish stance as policy approaches a "Goldilocks zone" sweet spot.