Archive

EA: Eating A Disinflationary Revision

• Another downward food price revision cut HICP inflation back to 2.1% in November, but the effect was only 1.6bp, and services inflation was marginally stronger than before.
• Service prices are not converging on levels consistent with the ECB’s target, and many underlying metrics are too high. The median is a notable exception, broadly below 2%.
• The ECB’s “good place” assessment should be unaffected by any of this, nor the base effects driving things slightly below the target in January. It should sound neutral.

By Philip Rush

Thailand's Easing Limits Tested

• Thailand's central bank delivered an expected 25bp rate cut to 1.25%, the fifth since October 2024, as growth slows to 1.5% in 2026, suggesting limited effectiveness of further easing given constrained credit transmission.
• Headline inflation revised sharply to -0.1% for 2025 and 0.3% for 2026, well below target but stable in core measures. Further cuts depend on whether the expected return to the target range by mid-2027 materialises.
• Limited policy space and baht appreciation create competing pressures on future cuts. The consensus sees two additional reductions possible through 2026, but the effectiveness is questioned if credit channels remain impaired.

BI Hold: Rupiah Trumps Cuts

• BI-Rate held at 4.75% as expected, with a pause in the easing cycle signalled and limited 2026 cuts conditional on rupiah stability amid transmission lags.
• Focus shifts to KLM incentives (Rp388T disbursed) to fix 24bps lending rate lag vs 67bps deposit drop. Future cuts hinge on credit growth revival.
• The Rupiah at Rp16,685/USD constrains the outlook amid US tariffs/Fed divergence. Growth needs transmission fixes before more easing.

Chile's Disinflation Sprint Meets Policy Limits

• Chile cut rates by 25bp to 4.5%, in line with expectations, forecasting inflation to hit 3% in Q1 2026, supporting further easing if convergence holds.
• Peso appreciation and slowing labour costs beat forecasts, but wages are above historical averages and the neutral rate of 3.75-4.75% signals limited space ahead to cut.
• Future cuts hinge on labour market data and external risks (copper, global growth). Policy is data-dependent amid a narrowing gap to the neutral rate.