Archive

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.

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.

ECB: Wishfully Rolling Disinflation

• Stronger wage and service price inflation have shrunk the Q1 target undershoot to only 0.1pp, removing the space that doves hoped might free the ECB to cut again.
• Spending over half the year on hold and in a “good place” creates an inertia that will be hard to break towards another cut. We still see the ECB’s easing cycle as over.
• Rolling the disinflationary trend back a year helps soften hawkish pressures, but losing this amid ongoing strength seems more likely to push the ECB into a hawkish direction.

By Philip Rush

BoE: Three Camps, Two Votes, 1 Cut

• The MPC’s 5:4 vote split delivered another finely balanced rate cut, but the doves are divided, with only two likely to roll straight into supporting another cut in February.
• Most MPC members favour caution, or an explicitly slower path of rate cuts, which probably means they expect to wait until March or May before easing further.
• The disinflationary evidence may not arrive with pay settlement plans in the new year, or later, so we still see this as the last BoE rate cut. The global policy cycle is turning.

By Philip Rush