Archive

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.

Riksbank Holds at 2% Amid Fragile Outlook

• The Riksbank held its rate at 2% while seeing above-target summer inflation as temporary.
• Weak growth and a fragile labour market sustain rate-cut probability later in 2025.
• The policy outlook hinges on fading inflation pressures, demand recovery, and global risks.

New Zealand Extends Dovish Rate Cycle

• The RBNZ cut the OCR to 3% in August, matching consensus expectations amid stalled growth and stable medium-term inflation.
• This decision was split, with a minority favouring a larger cut. Further reductions to 2.5% are likely unless inflation surprises persist.
• Weak household demand and global uncertainty may extend the easing cycle, making future rate policy highly data-dependent.