Archive

Indonesia’s Surprise Summer Rate Cut

• Bank Indonesia’s surprise 25bps cut to 5.00% signals proactive easing amid subdued inflation and global uncertainty.
• The Rupiah’s strength and solid capital inflows provide policy space to support domestic growth despite external risks.
• Further cuts are likely this year, contingent on exchange rate stability, fiscal support, and global economic developments.

EA: Re-Balance Of Payments

• An end to the Euro’s bullish trend is now revealed to have coincided with a reversal of two critical supports. Frontloaded export levels have normalised without payback.
• International portfolio investment into the EA during April fully unwound between May and June, revealing no investor appetite to hold higher allocations to EA assets.
• The Euro is not benefiting from a structural shift towards it, so we doubt the bullish trend will resume. Belated payback in goods inventories could also eventually weigh.

By Philip Rush

UK Excess Inflation Expectations

• The upwards trend in consensus inflation forecasts reflects persistent excess effective expectations supporting wages amid policymakers’ failure to re-anchor at the target.
• Easing on the assumption of success predictably negated the required conditions, so we forecasted the problem. Nonetheless, expectations were also stickier than we assumed.
• Without renewed progress, wage growth should keep trending above the BoE’s forecast, discouraging further rate cuts. Hikes may even be needed in 2026 to break excesses.

By Philip Rush

HEW: Wrong Policy Turnings

• As soon as a data point calms nerves around a theme, a hawkish challenge seems to appear. This week, that was US CPI into PPI and UK unemployment into GDP.
• A bias to ease, triggered by a one-touch round of bad news, has consequences when not sustained. The BoE’s early start to its easing cycle has proved to be a policy mistake.
• Next week is a prime opportunity for Chair Powell to calm dovish excitement about Fed easing. UK inflation seems set to rise by another tenth, while the EA rate sticks at 2%.

By Philip Rush