Archive

Monetary Policy Tide Is Turning Up

• Markets are already pricing the return of rate hikes in 2026 for Canada, Australia and New Zealand, while policymakers elsewhere are starting to warn of the possibility.
• Transitional support to structural adjustments needs unwinding, as Canada signals most prominently. Broader activity resilience and inflation reveal the risk of overstimulation.
• The BoE already committed a policy mistake by easing too early, and is split by those recognising the persistent danger. Market pricing remains too dovish for 2026.

By Philip Rush

BSP Cuts Near Endpoint Amid Structural Headwinds

• The BSP unsurprisingly cut rates by 25bps to 4.50% and signalled the cycle as near its end despite weakness; this matched the consensus but marks the fifth consecutive cut with 200bps total easing since August 2024.
• Growth decelerated to a three-year low of 4.0% in Q3 amid governance concerns and trade policy uncertainty. Recovery is dependent on improved fiscal spending and confidence restoration.
• Inflation forecasts are revised upward to 3.2% (2026) and 3.0% (2027), approaching the upper target band. Further easing is "likely limited" pending data showing effective transmission.

SNB: Zero Rate, Rising Policy Dilemmas

• The SNB holds its policy rate at 0% in line with consensus. Markets now expect a prolonged pause, with little chance of negative rates in the near term.​
• Despite near‑zero inflation, the SNB’s medium‑term forecasts justify keeping rates on hold, pointing to 0% policy rates well into 2026.​
• Future rate moves hinge on franc strength, global trade risks and inflation persistence, with FX intervention preferred over renewed negative rates.​

BoC: Structural Pause at 2.25%

• The BoC held the policy rate at 2.25%, matching the consensus, and framed this as a pause near neutral that likely extends the horizon for stable rates.​
• Strong but trade‑driven Q3 growth and still‑soft domestic demand argue against near‑term hikes, keeping the bias toward a prolonged hold rather than renewed easing.​
• With CPI near 2% and core around 2.5%, the Bank sees inflation anchored, reducing pressure for further cuts and reinforcing a data‑dependent, higher‑for‑longer rate stance.​