Archive

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.

Peru: Cuts Paused As Space Squeezed

• Peru's central bank (BCRP) held rates at 4.5% as expected, maintaining a cautious stance despite well-anchored inflation at 1.7% within the target range.
• Global trade uncertainty weighs on the outlook, but future cuts are conditional on inflation data and external conditions affecting the economy.
• The real rate is slightly above neutral, providing limited scope to ease, with a terminal rate around 4.0-4.25% reached by early 2026.

Norway: Holds Steady on Easing Path In August

• Norges Bank unsurprisingly held rates at 4.25% as expected, maintaining a restrictive stance while inflation persists above 2% target.
• The central bank signals 1-2 more cuts as likely in 2025 if the economy evolves as projected, with a September reduction widely anticipated by markets.
• Trade policy uncertainty and sticky services inflation create upside risks, but the gradual normalisation path remains intact barring shocks.

BoE: Policy Mistake Diagnosis

• Inflation expectations have been persistently too high, while productivity trends poorly, driving wage and price inflation forecasts to grind higher in recent years.
• The BoE’s cutting cycle contributed to reversing the trend decline in expectations, and in turning a slight overshoot into a massive one, with a 3.2pp revision since Feb-23.
• We forecasted this excess for these reasons, so it was predictable and therefore a policy mistake to cut so soon. Further surprise should prevent the MPC from cutting again.

By Philip Rush