Archive

ECB: Less Downside From The Good Place

• Downside activity risks have reduced, while the inflation outlook holds steady, keeping the ECB in its “good place” despite an implied shift up in the balance of risks.
• Upside risks while inflation is seen settling at 2% would imply a hawkish bias, which the ECB isn’t ready to convey. But the skew may have swung within insignificant margins.
• We still expect no more ECB rate cuts this cycle. If underlying inflation fails to slow as hoped, the ECB’s balanced bias could easily break into a hawkish one in 2026.

By Philip Rush

BOJ Holds: Caution Amid Uncertainty

• The BOJ held rates at 0.5% as expected, with a 7-2 vote showing continued division. A December hike is now priced at 50-55%, down from 68% pre-Takaichi.
• Inflation forecasts are unchanged at 2.7% (FY25), 1.8% (FY26), with sluggish underlying price growth and downside economic risks delaying tightening.
• Wage sustainability and trade policy uncertainty dominate the outlook. 2026 labour talks and corporate profit trends will determine the rate path timing.

Credit For Inflation

• Credit and monetary holdings are booming in the UK, enabling consumers to spend their devalued pounds, supporting CPI inflation beyond the target.
• Falling rates have neutered the refinancing shock, facilitating the affordability of loan demand. Rapid ongoing wage growth further reduces the debt burden.
• The ECB also sees bullish monetary trends, but they only took it to a good place. The BoE is not in a good place, with policy accommodating above-target inflation pressures.

By Philip Rush

BoC Cuts to 2.25%: End or Pause?

• The Bank of Canada cut its policy rate by 25bp to 2.25%, matching the consensus, and signals the current rate is about right to sustain 2% inflation.
• Structural damage from tariffs limits further monetary easing. Fiscal policy is expected to carry the economic support burden ahead.
• Economists are divided: some see the cycle complete at 2.25%, others forecast further cuts to 1.75-2.0% if growth disappoints materially.