Archive

HEW: October’s Wave of Easing

• US inflation joined the punchy payrolls release in exceeding expectations, defying the dovish bias. The RBNZ followed the Fed’s 50bp, and Korea started cutting, but Peru hawkishly surprised with rates on hold. The early-easers are having second thoughts.
• Next week’s policy focus is the ECB, which we expect to cut amid a dis-inflated outlook and disappointing demand. The market and consensus agree although it is not inevitable. UK inflation data are set to slow while the labour market remains tight.

By Philip Rush

Korea: 25bp Rate Cut To 3.25% (consensus 3.25%) in Oct-24

• The Bank of Korea cut its base rate by 25bp to 3.25%, in line with the consensus, citing stabilised inflation and a slowdown in household debt growth.
• Future rate decisions will depend on the domestic demand recovery, which remains sluggish, alongside heightened global economic risks such as geopolitical tensions and volatility in foreign exchange markets.
• The central bank will continue to weigh the trade-offs between growth and financial stability, with particular attention to household debt and housing market dynamics amid potential further rate cuts.

Peru: Policy Rate Held at 5.25% (consensus 5.0%) in Oct-24

• The Central Reserve Bank of Peru’s decision to hold the rate at 5.25% surprised markets expecting a 25bp cut, signalling a more hawkish stance driven by moderating inflation trends and anchored expectations.
• Inflation has declined, with headline inflation at 1.8% and core inflation at 2.6%, but a temporary rise is expected in Q4, underscoring the BCRP’s focus on inflation data to guide future rate decisions.
• The BCRP’s future policy path will depend on inflation dynamics and global risks, with volatility in international markets and geopolitical concerns, such as rising fuel prices, playing critical roles in determining rate adjustments.

US CPI Extends Hawkish Narrative

• An upside CPI inflation surprise has joined upside news on the US labour market. It resisted dis-inflated expectations despite sharp falls in energy prices.
• Core strength was more pronounced and not reliant on shelter price inflation, which it exceeded by the most since Feb-22. Nor does strength reflect residual seasonality.
• Repeating 2022-23’s pattern would mean a softer Q4, helping the Fed to cut again in November and December before more robust numbers in Q1 start urging restraint.

By Philip Rush