Archive

BoC Cuts Amid Trade War Damage

• The Bank of Canada cut the overnight rate by 25bp to 2.5% amid 7.1% unemployment and a 1.6% Q2 GDP contraction from US tariffs.
• Core inflation remains elevated, with the CPI rate at 1.9% but preferred measures around 3%, constraining aggressive easing despite growth weakness.
• The BoC's forward guidance signals it is "proceeding carefully" with October cut probability around 60%, and the terminal rate at 2.25%.

Indonesia Cuts Rate to Support Growth

• Bank Indonesia surprised markets with a 25bp rate cut to 4.75%, defying consensus expectations as growth concerns outweighed stability considerations.
• The central bank enhanced policy transmission mechanisms and maintained rupiah stability despite global trade tensions and domestic political uncertainty.
• Further accommodation appears likely given subdued credit growth, below-target inflation, and coordination with government stimulus measures supporting growth.

ECB: Balanced In The Good Place

• Staying in the ECB’s “good place” encouraged a neutral bias around its unanimous decision for no change, while being appropriately open to tackling future shocks.
• Staff inflation forecasts still undershoot the target, with recent upside news seemingly postponing passthrough rather than trimming the extent into something like our view.
• President Lagarde sounded relaxed about France’s spread widening, and the ECB did not discuss the TPI. We still expect no ECB easing against this, or further rate cuts.

By Philip Rush

Peru Nears Neutral as Rates Cut to 4.25%

• BCRP cut rates by 25bp to 4.25%, approaching neutral policy as August inflation fell to 1.1% YoY, the lowest since 2018, below consensus expectations.
• The real ex-ante rate is now 2.07%, very close to the 2% neutral estimate, suggesting limited scope for further easing without overstimulating the economy.
• Global trade tensions create a medium-term downward bias for growth outlook, with a data-dependent approach maintained for future policy adjustments.