Archive

BoE Faces Renewed Margin Pressure

• CFOs suffered squeezed margins in 2025 that they intend to partly recover in 2026, reversing a source of disinflation into another reason for hawkish concern.
• Price and wage inflation expectations remain excessive while the November crash in employment sentiment reversed, dampening the dovish ammunition.
• The MPC’s three pivotal members need dovish news to bring forward another cut not implied until at least April. This outcome merely encourages the inactive course.

By Philip Rush

Mexico: Closing the Easing Door

• Banxico cut by 25bp to 7%, broadly in line with expectations, but signalled a de facto pause with a more data‑dependent approach to future easing.
• Sticky core inflation and upward‑revised forecasts for early 2026 mean additional cuts are unlikely before mid‑2026, keeping real rates above neutral for now.
• A 4–1 split vote and fiscal/trade‑related upside risks to inflation argue for a prolonged hold in Q1 2026, limiting the scope and speed of the remaining easing cycle.

BOJ: Measured Steps Toward Normalisation

• A hike to 0.75% was delivered as expected, reflecting confidence in wage-led inflation momentum, though real rates remain deeply negative and uncertainty around trade policy and wage sustainability persists.
• Future tightening hinges critically on 2026 spring wage negotiations reaching 5%+ and underlying inflation remaining firm as food-price effects wane. Some dissenting board members questioned inflation's near-term durability.
• Real interest rates at significantly negative levels permit gradual tightening toward the estimated 1-2.5% neutral range, with markets pricing 1.0% by mid-2026. Limited runway and external risks may constrain the pace of normalisation.

Riksbank Holds at 1.75%: Steady Path Ahead

• Riksbank holds rate at 1.75% as expected (no surprise); expects stability through 2026 before gradual hikes to 2.1% by 2028 as recovery strengthens.
• GDP growth up to 2.9% (2026 vs 2.7% prior); inflation stable near 2% CPIF supports extended accommodation without cuts.
• Labour market improving amid risks (geopolitics, fiscal expansion); flexible to adjust if outlook shifts from baseline path.