Archive

RBI Holds Rates Amid Trade Headwinds

• The RBI held its repo rate at 5.5%, unanimously keeping a neutral stance as the committee assesses the impact of prior cuts amid an improved inflation outlook.
• Inflation projections were slashed to 2.6% from 3.1%, driven by GST reforms and benign food prices, creating policy space despite growth risks from 50% US tariffs.
• Domestic demand raised the growth forecast to 6.8%, but H2 FY26 faces headwinds from trade tensions. The MPC adopts a wait-and-see approach before its next move.

UK: Government Leads Imbalances

• Household saving and inflation have eroded their debt burden while corporates remain prudent. A lack of imbalances to correct starves the UK of fuel for a recession fire.
• Persistent fiscal and current account deficits highlight where the UK’s primary risk lies. If the market regime focuses on fiscal issues, the corrective pressures could be fierce.
• We don’t expect that correction to occur, but the Chancellor should tread carefully, while doves need not worry about a recession arising from healthier other UK sectors.

By Philip Rush

RBA Holds at 3.6%: Inflation Concerns Temper Easing

• The RBA holds at 3.6% as expected, but warns that Q3 inflation may exceed forecasts, with the underlying decline slowing.
• Stronger Q2 GDP growth (1.8% annually) and a resilient labour market (4.2% unemployment) complicate the easing outlook amid a recovery.
• A November rate cut remains possible but less likely, with banks split between November 2025 and May 2026 for the next move.

UK: Lending Looks Stimulated

• Lending activity is sustaining beyond the levels prevailing before the stamp duty tax hike distortion. Only housing transaction volumes are down, but by less than before.
• New loan rates have fallen by 23bp since then, for a 110bp cumulative fall. New rates are close to the outstanding stock. Many borrowers are refinancing for similar deals.
• Past tightening has broadly passed through, but the strength in broad money growth signals that monetary conditions are settling at a slightly stimulative setting.

By Philip Rush