Archive

BNM Holds Rate Amid Trade Headwinds

• BNM holds its OPR at 2.75% as expected. Its data-dependent stance signals patience amid trade uncertainties & resilient domestic conditions.
• Benign inflation (1.4% headline, 1.9% core) provides policy flexibility, and a moderate outlook through 2026 supports an accommodative stance.
• Strong 4.4% H1 growth, driven by robust 7% Q2 domestic demand, leads analysts to expect rates on hold through 2025, with cuts if growth weakens.

Cutting After Pauses

• The BoE and Fed rarely resume cutting cycles after a pause, yet the Fed seems set to break its hold with a cut just as the BoE and ECB enter their own pauses.
• 2002-03 is the best historical parallel for the Fed, which signals potential cuts should be shallow and are likely to be reversed. Politics is no match for the fundamental need.
• Persistently excessive UK pressures should prevent the BoE from cutting in November or beyond, with a quarterly pause historically unlikely to resolve in another rate cut.

By Philip Rush

EA: Defying Disinflationary Narratives

• Dovish hopes for EA disinflation continue to be disappointed by resilient outcomes. The rise to 2.1% in August amid sticky core pressures is opposite to the dovish narrative.
• Euro appreciation’s disinflationary shock is being offset by domestic resilience, which was most surprising in Northern Europe. Our errors were relatively small and balanced.
• Ongoing upside surprises have defied recent consensus expectations of a drift down to 1.8%. The ECB faces broad upside news that should reassure it against cutting again.

By Philip Rush

HEM: Politicised Policy Pricing

• Persistent inflationary pressures pared dovish guidance and pricing for the BoE and ECB, but Fed pricing is stuck.
• Blocking a rare resumption of Fed easing looks unlikely, but history suggests cuts would be shallow and reversed.
• Peer pressure is weak during a policy mistake. The BoE faces domestic problems that prevent further easing.