• BCRA to raise quickly next time CPI inflation comes at 7.0% m/m or close
• BCRA needs to keep monthly effective rate and crawling peg closely in step with inflation to reduce export delay and portfolio dollarization incentives
• Unsustainable deficit+debt dynamics keep BCRA from pursuing positive real rates or depreciation
• BCRA can only passively respond to rising inflation, this status quo likely remains until regime change

The BCRA's future monetary policy rate decisions will remain bounded by the evolution of effective inflation, expected inflation for the short-term, and the interest rate limitations the central bank faces if it is to keep the official real exchange rate steady in the coming year, which is something the bank is paying close attention to. The BCRA hiked its benchmark 28-day bill rate by 300bps to 78.0% in mid-March to accommodate the monthly effective rate at 6.5%, up from 6.3%, in what was the first move for the rate since last September. The decision was taken following the release of a surprisingly high 6.6% m/m CPI inflation print for February and with market expectations of a similar reading for March. The BCRA is likely to raise another 200bps or 300bps if the CPI reading for March is close 7.0% m/m, unless high-frequency price trackers show a deceleration in early April.

Monetary policy has been passive for most of the past three years, sitting under the weight of massive fiscal dominance and past policy mistakes, and there are no prospects for this to change until the end of this government in December. To put it in short, the BCRA needs to keep its monthly effective benchmark rate and the official exchange rate crawling peg moving right in step with CPI inflation, and it doesn't have room to deviate much or for too long, which means monetary policy should be fairly predictable this year. The BCRA has slightly more room to delay rate cuts if inflation declines than it has room to delay rate hikes if inflation rises, but it seems very unlikely that inflation will decline this year anyway.

The dangerous inflation spiral and the massive real exchange rate appreciation that took place in 2021-22 put pressure on the BCRA to raise nominal interest rates and push the pace on the crawling peg when inflation rises. If the crawling peg lags versus inflation, the government would be increasing the incentives for exporters to withhold sales abroad and wait for an inevitable devaluation, while also reducing competitiveness (most exporters are forced to convert their FX income into local currency). This would add to an FX market crisis that has the government burning through its low FX reserves. However, if the nominal crawling peg is to move faster, interest rates also need to rise in step to avoid creating incentives to delay exports. Interest rates that at least match inflation are also key to discourage portfolio dollarization through parallel exchange rates, which are an increasingly important benchmark for price-setting practices.

The BCRA also needs to be careful of not going too high with real rates because it would contribute to the explosiveness of public debt dynamics and inflation. With the government running a fiscal deficit of more than 4.0% of GDP every year despite having virtually no access to market financing, the deficit has been covered by a mix of inflation tax and central bank balance sheet deterioration. The higher the real interest rate goes, the faster the deterioration of the central bank's balance sheet and the growth of the federal government's short-term debt. However, the evolution of market financing for the government and the BCRA's remunerated liabilities suggests that the room to get financing through these avenues is pretty much closed now, which only leaves inflation tax as an option. In this scenario, nominal interest rate hikes are inflationary as long as there are no drivers to increase the private sector's willingness to finance the government.

• MPC meeting: Nov 4-5, 2025
• Current policy rate: 15.00%
• EmergingMarketWatch forecast: Hold

The October IPCA-15 inflation slowdown should reinforce the Copom's view that its tight monetary policy stance is proving effective, though committee members are maintaining a hawkish tone amid persistently de-anchored inflation expectations, supporting our expectation of another hold of the Selic rate at 15.00% at the next policy meeting on Nov 4-5. IPCA-15 inflation eased to 4.94% y/y in mid-October, pressured up by higher transportation prices but down by slower housing price growth and another decline in food and beverage prices. In addition to this deceleration trend, Petrobras's recent decision to cut gasoline prices from Oct 21 may further ease official inflation (IPCA) readings for the month. While the indicator signals that the contractionary stance is having the intended effect, it is unlikely to be enough for the Copom to change the consensus it will hold rates at 15.00% since the labor market remains tight, economic activity is only gradually slowing, and inflation expectations remain de-anchored, still pressured by fiscal uncertainties.

BCB Governor Gabriel Galípolo reiterated recently that the Copom remains uncomfortable with the high inflation rate despite its recent slowdown. He emphasized concerns over persistently de-anchored expectations and reaffirmed his view that the Selic should remain at a restrictive level for a prolonged period. His remarks echoed the BCB's latest minutes.

Yet, inflation expectations do continue to ease, according to the latest central bank Focus Report. Analysts surveyed by the BCB lowered their inflation forecasts for 2025-28 for the second consecutive week, suggesting that the Copom's tone and recent data are starting to influence longer-term expectations. In our view, a stronger convergence of inflation expectations toward the 3.00% target is key for the Copom to feel comfortable softening its tone and to consider the start of an easing cycle, which we expect to begin sometime in H1 2026. However, fiscal uncertainty continues to weigh on inflation expectations and the timing of rate cuts. Following recent defeats in Congress to raise revenue, doubts remain over the government's ability to meet its 2026 primary surplus target, while measures such as the income tax reform and the new housing program are expected to stimulate demand. Given the Copom's cautious approach, it may opt to delay the beginning of the easing cycle to assess the impact of these initiatives on the economy, in our view.

Overall, inflation appears to be easing faster than anticipated by analysts and the BCB, supporting successive downward revisions for this year's IPCA inflation, which is now approaching the 4.50% upper bound of the +/- 1.50 pp band around the 3.00% target. In our view, this disinflation trend reinforces the effectiveness of the BCB's monetary policy, but persistent fiscal uncertainty and its potential impact on both expectations and demand will likely continue to delay the start of the monetary easing cycle. We therefore expect the Copom to keep the Selic rate unchanged at 15.00% in both the November and December meetings, with the first rate cut likely occurring between late Q1 and early Q2 2026.

• Next MPC meeting: Nov 6, 2025
• Current policy rate: 3.50%
• EmergingMarketWatch forecast: hold

Rationale: The CNB board was very predictable this time, and there were no surprises. The vote to keep the policy rate unchanged at 3.50% in September was again unanimous, as in August, and economic conditions have not changed much since then. The tone of the post-meeting statement was again on the hawkish side, and the outlook continues to be perceived as inflationary overall. The potential impact of introducing the ETS2 in 2027 was added as an inflation risk, which only adds to inflationary factors. Meanwhile, the possibility for a slower-than-anticipated German growth was mitigated due to fiscal expansion.

The minutes showed a broad consensus, though we did see some dovish notes from Jan Prochazka. Nevertheless, the overall impression was that the CNB board is still very much entrenched in its current position, and would rather leave interest rates stable for a while. Furthermore, there was broad agreement that a strong CZK is aiding efforts towards taming inflation, so there is no desire to do something about it. A tight labour market was very much into the board's attention, given that wage growth in Q2 once again exceeded the CNB's projections. This chimes with the remark of CNB governor Ales Michl that the board did not mind a stronger CZK, and it was one of the reasons why the board did not believe monetary conditions needed to be tighter. Eva Zamrazilova was her usual hawkish self, arguing that household consumption was too strong, and that wage growth only fuelled it further. Communication has been sparse this time around, though there is still time until the blackout for monetary policy comments expires. In this case, it most likely means that the CNB board has not shifted its stance considerably.

The September inflation data did show a headline inflation nearing the 2% target, but it was entirely due to food prices. Meanwhile, core inflation has likely remained elevated, at 2.8% y/y, which is the indicator that currently matters more to the CNB board. While the economy is showing signs of a slowdown, its source is still primarily manufacturing, even though household spending may be losing some steam as well. Yet, as service price inflation has remained sticky, and looks to be at that level for a while, we don't see inflation numbers changing the CNB board's current position. Headline inflation could easily end up around 2% y/y in October as well, with food prices again being the main factor, while core inflation remaining high. Service producer prices have actually shown a faster increase in September, so structural factors are still in play.

We see the next inflexion point being the 2026 budget bill, which will be likely rewritten by the new government. Since this will likely happen in late February 2026, it will be after the first MPC meeting in 2026, scheduled for Feb 5, 2026. This is why we expect that the first opportunity for a shift in policy will be at the MPC meeting in March 2026, and not earlier. ANO leader Andrej Babis, who is about to return as prime minister, has been already giving hints about some fiscal expansion, even though he is blaming the outgoing government for the need to boost spending. There is some argument in that, as it turns out the outgoing government has left transport infrastructure underfunded. Yet, the pretext is not that relevant here, the important point is that the 2026 budget will likely lead to some fiscal loosening, which will pile up on inflation pressure.

A looser 2026 budget will put CNB governor Michl in an interesting position, though. Michl has been hammering quite long about the risk from a fiscal expansion, so he will be expected to put his money where his mouth is. Even if Michl stalls, due to his close ties with Babis, there are enough people on the board who will do the job for him. On the other hand, if ANO decides to remain orthodox and not hurry with spending expansion (which appears increasingly unlikely), then we may see a rate cut as early as in Q1 2026. Yet, we doubt the next government will make the CNB's job easy, which means that monetary conditions will only need to get tighter from where we stand.

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Further Reading:

CNB board statement from latest MPC meeting, Sep 24, 2025

Post-meeting press conference, Sep 24, 2025 (in Czech)

Q&A after the latest MPC meeting, Sep 24, 2025

Minutes from the latest MPC meeting, Sep 24, 2025

Monetary Policy Report, August 2025

Macroeconomic forecast, August 2025

Meeting with analysts, Aug 8, 2025

CNB board profile

CNB board members' presentations, articles, interviews (Czech)

CNB board members' presentations, articles, interviews (English)

• Next MPC meeting: November 20, 2025
• Current policy rate: 21.5%
• EmergingMarketWatch forecast: 20.5% - 20.0%

The MPC will hold its next interest rate meeting on Nov 20 and we expect that the committee will deliver another 100bps rate cut, bringing the cumulative cut since April to 725bps. The government raised the petrol and diesel prices by about 13% mid-October as part of a reform program that is monitored by the IMF. The fuel price hike - and especially the sharper 15% increase in diesel prices - is expected to disrupt the disinflation trend. However, the government said there would be no fuel hikes over the next 12 months, so we think the MPC may go with another rate cut. The statistics office will publish the October CPI report on Nov 10, which will give us more clarity.

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Meanwhile, the pound has gained strength since April due to strong remittance, portfolio, and tourism inflows, and partly due to US policy aimed at weakening the US dollar. Despite the surge of portfolio inflows over the past year and a half, Egypt has managed to boost its resilience to external shocks and the latest two major external shocks - the US tariffs announced in early April and the 12-day war between Israel and Iran mid-June - had limited impact on the country. GDP expanded robustly in 2024/25 as non-oil manufacturing rebounded and private consumption and investments improved further, but economic growth is still below potential, according to the CBE, suggesting that demand-side inflationary pressures are relatively modest.

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Headline inflation is expected to remain contained during Q4 2025 and to moderate further in 2026, albeit at a slower pace. As such, underlying inflation is expected to converge to its historical average over the medium term as inflation expectations improve further, the MPC said in a recent inflation monitoring report. Inflation is expected to average 14% y/y in 2025 before moderating to 10-12% in 2026 and GDP growth is expected to reach its full potential by mid-2026. Demand-side inflationary pressures may begin to surface after that.

Monetary Policy Committee Statement

Monetary Policy Review

Monetary Policy Committee Meeting Schedule

• Next MPC meeting: Nov 18, 2025
• Current policy rate: 6.50%
• EmergingMarketWatch forecast: Hold
• Rationale: NBH repeatedly warns about need to keep forint stable, stimulate forint savings

The MPC will maintain its current policy stance of keeping tight monetary conditions at least till December, we maintain our baseline scenario. The MPC did not budge from its monetary policy stance on its rate-setting meeting in October in a situation of rising government pressure to cut rates. We recall that PM Viktor Orban renewed the government calls for lower policy rate, saying that the inflation target was unnecessarily high and that there was room for rate cuts in the longer term. Economy minister Marton Nagy followed suit and argued that the inflation target could be achieved also by a lower policy rate. The real interest rate could still remain positive, but it could be lower, Nagy said, in our opinion implying room for rate cuts of around 1pp. NBH officials have insisted on keeping the current policy stance despite the government pressure, we note. NBH executive director in charge of monetary policy Adam Banai pointed out that monetary policy needed to be wary about any forint weakening because the pass-through effect on inflation has become stronger than in previous years and because household inflation expectations have remained elevated. NBH deputy governor Zoltan Kurali also stated on Oct 7 that rushing with rate cuts could weaken the forint, adding that savings was an important monetary policy channel and the high real interest rate stimulated savings. The situation has not radically changed since the MPC September meeting and the September rate decision indicated that the policy rate should remain unchanged for a prolonged period of time, Kurali emphasised.

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The MPC did not revise its forward guidance on its meeting in October, fuelling our expectations that it will stick to its current policy stance in the near term. In the longer term, we believe that recent positive developments could create an opportunity for the MPC to reduce the policy rate without sacrificing its careful and patient policy approach. In particular, the Q3 Inflation Report of the NBH showed some improvement of the inflation outlook and the September inflation data showed an encouraging slowdown in food inflation, we note. In addition, the forint exchange rate has remained fairly strong and the MPC has already expressed satisfaction about its impact on manufacturing PPI and import prices. The inflation outlook, however, will benefit from a more sustained slowdown in import prices, so the MPC will need to continue supporting a stronger forint in the next month, we believe. Disinflation in the food sector will also need to become more firmly entrenched, which could contribute to moderating consumer inflation expectations. This process could eventually open room for credible monetary policy easing, but the appropriate conditions for this will not be present in the next months, we expect. Accordingly, the updated NBH forecast with the December Inflation Report will be more indicative whether a shift of the monetary policy stance will be possible, in our view.

The MPC reiterated after its October meeting that tight monetary conditions were still warranted and monetary policy will continue to follow a careful and patient approach, together implying no change in the monetary policy stance in the short term. The MPC highlighted the increased importance of the forint for the inflation outlook and inflation expectations. The MPC noted some improvement in inflation expectations, but cautioned that they were still elevated, requiring stable forint in order to ensure they become anchored in line with the mid-term inflation target. It also sounded hawkish on the recent tame inflation data, pointing out that it reflected a strong downward impact from the government's price restrictions, while pricing behaviour remained excessive outside the scope of the price regulations.

Post-meeting MPC statement from October rate-setting meeting

Background presentation of NBH governor Varga after October rate-setting meeting

Minutes from September MPC rate meeting

Inflation Report - Q3/2025

MPC meeting calendar 2026

• Next Policy Meeting: Dec 2-5
• Current Policy Rate: 5.50%
• Last Decision: Hold (Oct 1, 2025)
• Our Forecast: 25 bps cut
• Rationale: Inflation has fallen well below target while growth momentum remains firm, opening a narrow window for calibrated easing.

At its October meeting, the Reserve Bank of India's Monetary Policy Committee (MPC) left the repo rate unchanged at 5.5%, extending its pause after 100 basis points of cumulative cuts earlier in 2025. The standing deposit facility (SDF) and marginal standing facility (MSF) were maintained at 5.25% and 5.75%, respectively, with the decision once again unanimous.

Governor Sanjay Malhotra described the stance as "neutral with an accommodative bias," citing the need to let earlier policy easing, GST reforms and fiscal measures transmit fully through the economy. The RBI sharply revised down its inflation forecast for FY26 to 2.6%, from 3.1% previously, while lifting its growth projection to 6.8% on the back of resilient domestic demand and policy support. The overall tone was cautiously dovish - signalling that the central bank is preparing the ground for a measured rate cut in December if disinflation holds.

Inflation

The disinflation cycle has deepened more rapidly than the RBI had projected. Headline CPI eased to 1.54% y/y in September from 2.07% in August - the lowest reading since 2017. Food prices remained in deflation at -2.28%, led by vegetables, oils, pulses, and fruits. Rural food inflation fell to -2.17%, while urban prices slid to -2.47%, supported by favourable base effects and robust agricultural supply. A strong monsoon has anchored food availability, though excessive rainfall in parts of Maharashtra and Madhya Pradesh poses a risk to rabi sowing if flooding persists.

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Core inflation has edged up slightly on the back of firmer housing (3.9%) and energy (1.9%) costs, but overall price dynamics remain benign. The RBI now expects inflation to average below 3% for most of FY26, rising modestly towards 4% in Q4 as base effects fade and global commodity prices stabilise. With inflation running well below the 4% target midpoint, real policy rates have turned mildly positive, giving the MPC room to pivot toward growth support.

Growth Momentum

India's growth pulse remains strong. Real GDP expanded 7.8% y/y in Q1 FY26 - the fastest in five quarters - driven by broad-based gains across manufacturing, construction, and services. Sectorally, manufacturing grew 7.7%, construction 7.6%, and services 9.3%, while agriculture accelerated to 3.7% from 1.5% a year earlier.

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Industrial output rose 4% in September, with manufacturing up 4.8%, led by electrical equipment (+28.7%), autos (+14.6%) and basic metals (+12.3%). Infrastructure and consumer durables each posted double-digit growth, underscoring the strength of capital formation and urban demand. However, consumer non-durables contracted 2.9%, hinting at uneven rural recovery. The manufacturing PMI slipped to 57.7 from 59.3 in August - still solidly expansionary but signalling slower sequential momentum.

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Fiscal measures are cushioning the cycle. The GST reform, which streamlined the rate structure to two slabs (5% and 18%), and targeted tax reliefs are expected to lift disposable income and consumption through the December quarter. Together with subdued inflation, these factors should sustain real purchasing power even as exports face tariff-related headwinds from the US and Europe.

External and Financial Conditions

External balances remain manageable. The current account recorded a modest surplus in Q1 FY26 on the back of robust services exports, remittances, and lower oil prices. However, the merchandise trade deficit widened to USD 32.1bn in September as gold and silver imports surged ahead of the festive season.

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FX reserves climbed to USD 698bn by end-September, covering nearly 11 months of imports. The RBI has continued modest gold accumulation, taking holdings past 880 tonnes - part of a broader strategy to diversify reserves amid geopolitical uncertainty. The rupee, meanwhile, has softened to around INR 88.8 per USD, reflecting global risk aversion and outflows from emerging markets.

Liquidity remains abundant. System surpluses persist following earlier CRR reductions and sustained government spending, with money-market rates closely tracking the policy corridor. Bond yields have already priced in a 25 bps cut, while forward-rate agreements imply additional easing in early 2026 if inflation stays below 3%.

Policy Outlook

The RBI is approaching its December meeting with greater policy flexibility than at any time this year. With inflation well under target and output expanding above potential, the calculus has shifted from fighting inflation to sustaining balanced growth. While global risks - particularly renewed tariff tensions and volatile capital flows - argue for caution, the domestic macro backdrop justifies a calibrated easing. We expect the RBI to cut the repo rate by 25 bps to 5.25% in December while maintaining a neutral-to-accommodative stance. The move would mark a transition from pause to fine-tuning, ensuring policy remains supportive without reigniting price pressures.

The central bank is unlikely to signal a full easing cycle; rather, it will emphasise that further action depends on the persistence of low inflation and the resilience of external balances. Our base case is for the repo rate to remain at 5.25% through mid-2026, with the next window for review emerging only if growth decelerates below 6.5% or inflation continues to undershoot the 2-6% band. The RBI's December decision will test its willingness to pre-empt a growth slowdown without undermining its credibility on inflation - a fine line between prudence and proactivity.

Further reading

Last MPC decision

RBI Forward Looking Surveys

Calendar of MPC meetings

• Next policy meeting: Nov 18-19
• Current policy rate: 4.75%
• Our forecast: Cut, 25bps
• Last decision: Hold (Oct 21-22)
• Rationale: BI to resume monetary easing as key rate remains significantly higher than CPI and core inflation

Bank Indonesia cut the key rate by 75bps cumulatively Jul-Sep, before pausing the monetary easing cycle in October. This has brought total rate cuts to five (125bps) since the beginning of the year. The central bank justified the rate cuts with the need to support GDP growth in a low-inflation environment, as the rupiah has stabilised against the dollar, while the latest hold decision came on the background of concern about the rupiah's stability.

So far, the central bank has become more and more dovish in light of the low inflation and economic growth slowdown. Moreover, CPI inflation remains subdued and below the midpoint of the central bank's 2.5+/-1% target band. Although it has started to rise, inflationary expectations remain firmly anchored to the central bank's target.

We should also note that the new FinMin, Purbaya Yudhi Sadewa, criticised the central bank for being too hawkish and late with rate cuts to stimulate economic growth. The FinMin advised that the key rate should be 1pp higher than inflation, which suggests he sees it at 3.5% in the long term. As a result, we think BI will resume monetary easing as soon as November.

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GDP growth

GDP growth accelerated to 5.12% y/y in Q2 from 4.87% y/y in Q1. Despite the surprising acceleration, BI proceeded with the latest rate cuts, attributing the strong GDP growth to the front-loading of exports to the US in anticipation of the introduction of the 19% import tariffs in August. BI has maintained its GDP growth forecast at 4.6-5.4%, but said economic growth will be slightly above the midpoint, while most IFIs and rating agencies have their forecasts even lower at 4.7-4.9% in 2025.

In addition, the government also lowered its GDP growth forecast to 5.0% from 5.2% previously, though even this number now looks optimistic. Private consumption has been slowing down, dragging down overall GDP growth. On the bright side, export prospects have improved, particularly with the recent trade agreement with the US, which saw the US lower the import tariffs on Indonesian goods to 19%.

We should note that the government has taken steps to support economic growth in H2. These include a USD 2bn stimulus package to be provided in December, as well as the placement of IDR 200tn government funds from the surplus budget balance (previously kept with the central bank) into commercial banks in a bid to boost lending.

Exchange rate stability

The rupiah had strengthened since the beginning of May, erasing some of the losses accumulated in March and April, up until August. After the BI started easing monetary policy, the rupiah reversed some of those gains. As a result, its YTD depreciation is about 2.2%, with the exchange rate now back into the USD/IDR 16,600 level in October.

The governor stated that Bank Indonesia will continue to use its tools to keep the local currency stable. In fact, the BI has been regularly intervening in the forex market since the beginning of the year, when volatility increased due to capital outflows seen in other EMs as well.

Moreover, expectations for more Fed rate cuts have given Bank Indonesia further confidence to slash the key rate as pressure on the rupiah has eased, despite that it remains one of the worst performing currencies in the region.

Inflation environment

CPI inflation accelerated to 2.65% y/y in September from 2.31% y/y in August, thus remaining close to the midpoint of the BI's 2.5+/-1% target band.

Looking forward, inflation expectations have also shifted towards lower inflation this year, with most projections pointing to CPI inflation remaining below the midpoint of the central bank's 2.5+/-1% target band by the end of the year. The latest IMF forecast points to 1.8% CPI inflation this year.

At any rate, Bank Indonesia expressed confidence that CPI inflation will remain under control and within the target band in 2025. This projection looks realistic, in our view, especially given the recent stabilisation around the midpoint of the target band.

Conclusion

Looking forward, we expect Bank Indonesia to resume its monetary policy easing in November, implementing another 25bp rate cut. In fact, the recent monetary easing amidst the rising pressure from the government has also raised concerns about the central bank's independence.

On the other hand, there is a possibility, although lower in our view, that BI keeps the key rate on hold for one more month and focus on accelerating government debt purchases on the secondary market, liquidity provision and stimulating credit growth.

We should note that if the Fed continues with the rate cuts due to the persistent low inflation in the US, coupled with the stagnating labour market, it may prompt other central banks to follow suit and reduce rates as well.

Further reading

Last MPC press release

Calendar of MPC meetings

• Next MPC meeting: November 6
• Current policy rate: 7.50%
• EmergingMarketWatch forecast: 25bps cut

Core CPI inflation slowed to 4.24% y/y in October H1, adding 10 fortnights above 4.00%, while the CB continues an easing cycle that began in August 2024 and is not about to end.

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CPI inflation has slowed, hitting 3.63% y/y in October H1, adding 7 fortnights below 4.00%, and slowing by 1.06pps y/y. However, this deceleration has come fully on the back of non-core inflation. Some board members seem to disregard this, focusing on general disinflation, noting general inflation is in line with its historic values. This dovish side of the board minimizes lingering inflationary pressures, some of which are visible in core inflation data, in our view. This dovish position is particularly headed by Governor Victoria Rodríguez and Deputy Governor Omar Mejía.

On the other hand, Deputy Governor Jonathan Heath insists the CB should focus on core inflation, not on the disinflation driven by non-core inflation, warning non-core inflation is not driven by the economic cycle nor by the CB's monetary policy. Moreover, in a recent interview, the deputy governor warned that non-core inflation is intrinsically volatile and it's unreasonable to anticipate the low pressure it's yielded in recent months can extend for long, anticipating inflation will accelerate so long as core inflation fails to slow.

We believe this is the main debate to have in the Monetary Policy Council (MPC) in coming sittings, as the board ponders further easing. However, we see no appetite from the dovish side of the board or from the kingmakers to highlight lingering core inflation pressure. Indeed, We only see Deputy Governor Galia Borja pondering this lingering pressure in recent prints, perhaps standing as the more likely board member to eventually join Deputy Governo Heath in voting against further easing.

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Thus, we remain confident the CB will cut its Monetary Policy Rate (MPR) by 25bps in November, in a 4-1 vote. There is a possibility that a new 25bps cut in December comes from a 3-2 vote, if Borja leaves the dovish side of the board. However, we believe this is unlikely; indeed, we expect two 4-1 votes to close the year, bringing down the policy rate to 7.00%.

Given how dovish the majority of the MPC has been, we expect further easing in early 2026, even as inflationary pressures persist. Barring a surprising acceleration of CPI inflation, we anticipate the CB will cut its policy rate by 50bps in Q1, bringing it down to 6.50% by March-end.

Looking at Q1, it remains to be seen how the MPC will react to new inflationary pressures. On this, we insist the 2026 budget is inflationary, raising taxes on sugary drinks, videogames and tobacco, while cutting some exceptions (mostly for banks) and imposing tariffs on countries with which Mexico does not have a free trade agreement. The govt plan to again raise the minimum wage by 12% adds to this inflationary pressure, in our view. The MPC has not pondered these pressures, per the latest minute, except for Deputy Governor Heath, who warns of the inflationary pressures of these measures. It remains to be seen if any other board member will recognize this looming pressure in the next two sittings. Still, once the pressure begins to materialize, it will be harder to turn a blind eye on this pressure.

Finally, we expect the MPC to highlight the Federal Reserve's recent easing. Indeed, the bulk of the MPC agree that the Fed's recent easing gives them room to continue their easing cycle. Even Deputy Governor Heath recognizes that the Fed is giving leeway to the dovish side of the board, considering that, in his view, there is no further room to cut the difference with the US.

Overall, we are confident the CB will cut its policy rate by 25bps in November, bringing down the policy rate to 7.25%. We fully expect the CB will vote for another 25bps cut in December and will cut its policy rate further in early 2026. How much easing comes in 2026 might depend on the Federal Reserve's actions and the dovishness of the kingmakers in the CB's board, as they continue to minimize core inflation pressures. Indeed, given the dovishness of the bulk of the board, we see the MPR falling to 7.00% by year-end, and to 6.50% by Q1-end.

• Next MPC meeting: 24 - 25 November 2025
• Current policy rate: 27%
• EmergingMarketWatch forecast: 26%

Following a m/m fall in headline inflation by 210bps in September, the MPC has flexibility to consider further rate cuts when it meets on 24 and 25 November. September's inflation rate of 18.02% marked six consecutive months of slowing inflation and the lowest rate in three years. The decline, which surpassed market expectations, was largely driven by a significant drop in food prices. When the MPC lowered the monetary policy rate by 50bps to 27% in September, this was largely due to CPI trends as of August (where inflation fell by 180bps m/m to 20.1%). CBN governor Olayemi Cardoso said in a statement that the cut was based on both recent economic data and forward-looking projections. In addition to disinflation, the MPC expressed satisfaction with improvements in output growth, stable exchange rates and robust external reserves. The committee concluded that this macroeconomic stability provides room for monetary policy to further support economic recovery. We anticipate continued stability and lower inflation for the month of October, which could lead to a more aggressive cut in the MPR (by 100bps) at the next MPC meeting.

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On foreign reserves, Cardoso was highly optimistic in his statement. He noted that sustained policy measures and renewed investor confidence had helped reserves rise to their highest levels since 2019. Gross external reserves reached USD 42.35bn as of end-September 2025. The CBN said the current account surplus also improved, reaching USD 5.28bn in Q2 2025 from USD 2.85bn in Q1. Strong oil exports and portfolio inflows drove performance. The stability of the naira in official and parallel markets has anchored inflation expectations and restored investor confidence, though dependence on oil revenues and capital inflows remains a vulnerability.

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Despite the easing in inflation, the MPC noted a persistent build-up of excess liquidity in the banking system, largely due to fiscal releases from improved government revenues. To absorb excess public sector funds, the CBN introduced the 75 percent CRR on non-TSA deposits. The CBN also intends to work closely with the ministry of finance to align fiscal releases with monetary policy objectives.

Monetary Policy Committee Statement

Monetary Policy Committee Meeting Schedule

Next policy meeting: Dec 15, 2025

• Current policy rate: 11.0%
• Last decision: Hold (Oct 27)
• Our forecast: Hold
• Rationale: Flood-induced inflationary pressures in near term are likely to keep central bank on hold

The State Bank of Pakistan (SBP) left its key rate unchanged at 11.0% at its policy meeting on Oct 27, in line with market expectations. The decision came amid rising inflation pressures driven by food supply disruptions following flood-related crop losses and the prolonged border closure with Afghanistan. The central bank said the overall macroeconomic outlook has improved compared to its earlier assessment, citing a lower-than-anticipated impact from the floods, which led it to revise its GDP growth forecast slightly upward. The favourable external sector outlook was maintained, supported by strong remittances and financial inflows.

We expect the SBP to hold its benchmark interest rate through FY26, keeping its monetary stance tight in line with IMF recommendations. With inflation projected to exceed the upper bound of its 5-7% target range in the coming months and imports picking up amid the economic recovery, the central bank, in a subtle forward guidance, signalled an extended rate pause, noting that the current real policy rate remains "adequately positive."

Inflation environment

CPI inflation rose to an eleven-month high of 5.6% y/y in September, driven primarily by higher food prices, an upward adjustment in gas tariffs, and elevated healthcare and education costs. Core inflation remained broadly stable in rural areas at 7.8% y/y but edged up to 7.0% y/y in cities.

The SBP projected headline inflation to breach its 5%-7% target range for a few months in the second half (Jan-Jun) of FY26, reverting to the target range in FY27. The tone was slightly optimistic, considering inflation was previously projected to cross the 7% level for "most of the second half". The SBP noted that, unlike previous flood episodes, the recent surge in food prices appears to be milder than anticipated earlier.

That said, price pressures are largely contained, aided by subdued global oil prices, exchange rate stability and stable electricity prices. However, risks persist stemming from higher food prices on account of crop losses and an increase in the minimum support price for wheat, as well as another likely hike in gas tariff from January.

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GDP growth

The SBP upgraded its GDP growth forecast, in line with its better-than-expected outlook for the agriculture sector. It noted that economic activity gained further momentum, supported by improved domestic demand in part due to a sharp fall in interest rates and positive business sentiments. Growth is projected to reach the upper end of its earlier forecast range of 3.25-4.25% in FY26, up from 3.0% expansion in FY25. Previously, the central bank had projected GDP to come in near the lower end of this forecast range.

The SBP's forecast is upbeat than the IMF's forecast range of 3.25%-3.50% for the current fiscal year. It is also well above the World Bank's projection of 3.0%.

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External sector

The external position is expected to strengthen, with the liquid foreign exchange reserves held by the SBP estimated to rise to USD 15.5bn by end-December 2025 and USD 17.8bn by end-June 2026, up from USD 14.46bn as of Oct 17. The uptrend is seen aided by robust loan disbursements, bilateral debt rollovers, and continued interbank purchases. These inflows are projected to offset the current account deficit, which the central bank estimated in the range of 0-1% of GDP in FY26. In Q1, the current account deficit stood at USD 594mn.

Rising imports are a key threat to the external sector's stability. According to the SBP data, non-oil imports jumped by 14.0% y/y in Q1 FY26, due to a surge in imports of vehicles, machinery, and food items. Exports, on the other hand, grew at a milder pace of 6.5% y/y during this period. Nevertheless, robust remittance inflows - projected to reach a fresh record high of USD 41bn in FY26 - would keep the current account deficit in check. Moreover, the SBP noted that the flood-induced import requirements are expected to be somewhat lower than anticipated earlier.

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Conclusion

Overall, we expect the SBP to hold its key rate steady through June 2026 as flood-related disruption to supply chains and crop losses keep inflationary pressure elevated in the near term. The real interest rate is set to narrow as inflation is projected to exceed the target range in the coming months. Given the IMF's emphasis on maintaining adequately positive real rates, the central bank is likely to adopt a cautious monetary policy stance. Further, as economic growth continues to strengthen - partly reflecting the impact of the earlier cumulative 1,100 bps rate cuts - the scope for further easing appears limited.

Further Readings

Previous policy rate decisions

SBP's The State of Pakistan's Economy report

Latest IMF statement

• Next monetary policy meeting: Dec 11
• Current policy rate: 4.75%
• EmergingMarketWatch forecast: Cut by 25bps
• Rationale: Monetary Board statement of Oct 9; comments by Governor Remolona; new forecasts by the IMF

We think that BSP's Monetary Board (MB) is likely to reduce the policy interest rate by 25bps at its next meeting on Dec 11, the sixth and final one for 2025. Last Thursday, the MB decided to reduce the central bank's Target Reverse Repurchase (RRP) Rate by 25bps to 4.75%. The central bank also cut the overnight deposit and lending rates by 25bps to 4.25% and 5.25%, respectively. The decision was a surprise, as most economists polled by Bloomberg and Reuters had expected the BSP to keep rates unchanged.

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The MB's assessment is that there is scope for a more accommodative monetary policy stance. The benign inflation outlook and the moderating domestic demand justify further support to the economy. As the effects of earlier policy easing work through the economy, the central bank will continue to be vigilant to emerging risks while maintaining price stability consistent with sustainable growth and employment.

BSP Governor Eli Remolona Jr. said that another policy rate reduction is possible at the December MB meeting, and more cuts are also on the table, the BusinessWorld reported.

Inflation

The outlook for inflation is favourable and well within the 2-4% target band, the BSP said on Thursday. Inflation expectations continue to be well-anchored. Some upward pressures could arise from potential adjustments of electricity rates and possible increases in tariffs on rice imports. However, the risks to the inflation outlook are limited given that price pressures are anticipated to ease.

The IMF forecasts annual average CPI growth of 1.6% this year and 2.6% next year, according to the October World Economic Outlook published on Tuesday. In April, the two inflation rates were predicted at 2.6% and 2.9%, respectively. The IMF noted in the latest report that inflation in the Philippines surprised on the downside. The inflation target range is 2.0-4.0%. The end-of-period y/y CPI growth is predicted at 1.5% in 2025 and 2.8% in 2026.

Economic growth

The outlook for economic growth in the Philippines has weakened, the MB said last Thursday. Governance concerns about public infrastructure spending weigh on business confidence. The signs of softening demand also reflect persisting uncertainty from external factors.

On Friday, Remolona told CNBC that he expects the slowdown to be short-lived, maybe two or three quarters, and then they will see a better trajectory than before. He hence anticipates more than just a catch-up.

On a related note, the BSP governor was also quoted by BusinessWorld as saying that they expect growth of 5.3% this year and 6.0% next year. The Philippine government targets GDP growth in the range 5.5-6.5% this year and 6.0-7.0% per year over the period 2026-2028.

On Tuesday, the IMF lowered its projections of GDP growth in the Philippines in 2025 and 2026 to 5.4% and 5.7%, respectively. In July, the two rates were forecast at 5.5% and 5.9% respectively.

Exchange rate

The peso is trading at USD/PHP 58.192 at the time of writing, which compares with USD/PHP 58.433 on Oct 9, the date of the latest MB meeting.

On Thursday, Remolona said they will only defend the domestic currency if it weakens sharply enough to potentially become inflationary.

Further reading

Press release after Oct 2025 monetary policy action

Schedule of monetary policy meetings

Highlights of MB meetings on monetary policy

Monetary Policy Report

• Next MPC meeting: Nov 4-5, 2025
• Current policy rate: 4.50%
• EmergingMarketWatch forecast: 4.25%/4.50%

Rationale: This Monetary Policy Council likes to surprise and did so again at its Oct 7-8, when it cut rates despite the consensus for no change. That meant the council has cut rates at its past three sittings (though there was a break in August) and has now cut rates by 125bps this year. That sounds like an easing cycle, but the MPC has continued to call all its moves "adjustments" and one supposes were are in an "adjustment cycle."

At the beginning of the year, if one were to say the MPC would cut by 125bps, that would have seemed a big forecast, but the year has seen inflation pressures wane and inflation return to the +/- 1-pp band around the 2.5% target, with inflation just above the target at 2.9% y/y in September. There was some chance it might have risen in Q4, but the government and president worked together to extend the power price freeze through the quarter and thus inflation will likely remain around the 3% level through end-2025. The power price cap extension was one main reason for the October cut.

Though the council has cut fairly sharply this year, NBP and MPC head Adam Glapinski was surprisingly dovish during his Oct 9 monthly presser, saying there was still room to cut and not ruling out a move in November. MPC member Ireneusz Dabrowski was also fairly dovish, but members Ludwik Kotecki, Cezary Kochalski, Gabriela Maslowska, and Henryk Wnorowski have all sounded cautious. That has muddied the prospects heading towards the Nov 4-5 sitting, and it is an open guess as to what the council will do.

Much will depend on how the November inflation projection deals with future inflation threats. If they are discounted, then the projection is likely to be pretty dovish and that might open the door to a November cut. We are starting to think too that Glapinski might just prefer to cut a little deeper in 2025, giving more time and space in 2026 to see how future inflation threats shape up. Still, the projection might take a no-policy change view, and that could lead to a projection of higher inflation in January. Glapinski said in October that if power prices rise from the cap to the current tariff, then that might up inflation by 0.3-0.4pp (though the tariff will likely be cut for 2026). But there might also be pressure on prices from heating, water, garbage, alcohol and tobacco, and sugary beverages.

There might also be a little strategy to the coming decisions. Statistics Poland (GUS) updates its inflation basket early in the year every year. This means that the level of January inflation won't be clear until mid-March, which is actually after the March sitting. Because the council usually does not touch rates at its "holiday" sitting in December, this means that if the council wants to cut rates by 25bps, it can either do so in November or in April. If it doesn't want to wait till April, then that might increase the chance of a November cut.

Of course, the council might cut rates based on the preliminary inflation release for January released in February (there are no flash inflation estimates for January and February). It might also just hold rates at 4.50% through to Q2 and then cut down to 4.00% in that quarter, with that level seeming to be the preferred short-term target. If inflation risks wane, say, because the ETS2 is delayed, then that could open up further cuts to 3.50% in H2 2026. It does seem likely that 3.50% will be the bottom for this cycle as that is about 1pp above the inflation target, a level Glapinski has mentioned at his pressers.

Overall, we had expected the council to hold in October and then cut in November, but that was clearly wrong. We have thought that 125bps was as much as the MPC was comfortable with, and indeed it can cited fiscal risks to inflation plus the various threats of a January inflation jump to hold rates in November and December. But there is a chance that the council will believe it can cut once more in November and then leave rates on hold at 4.25% to April, with that level to still mean fairly high real rates, but to also give some margin if inflation should rise early next year. The data to come will also naturally be key, and it is probably 50-50 in whether the council "adjusts" rates again in November.

MPC's post-sitting statements

Latest council minutes

Latest NBP inflation report (July 2025)

Most recent MPC voting results

Archived video of all MPC press conferences

• Next MPC meeting: Oct 23, 2025
• Current policy rate: 40.5%
• EmergingMarketWatch forecast: Cut by 150-200bps
• Rationale: Elevated real rates and improved CDS provide room to ease, but slower disinflation inflation, tight curve, and political headlines argue for caution

We anticipate the CBT to maintain its monetary easing trajectory at the upcoming MPC and reduce the policy rate by 150-200bps. With CPI inflation substantially exceeding expectations and standing at 33.3% y/y, the current policy rate of 40.5% yields ex-post real rates near 7.2pps relative to headline CPI. This buffer may provide the CBT room to advance the easing cycle without immediately undermining disinflation credibility. On the external side, Turkey's CDS has traded below pre-19 March levels, when IMM mayor Ekrem Imamoglu was detained, which we evaluate as a constructive development.

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Yet four substantial risks loom ahead, we note. First, the trailing three-month average CPI stood above 30% in annualised terms, which is well above the CBT's 24% target and its 29% upper forecast band. This gap creates material credibility exposure, particularly if market participants interpret the overshoot as evidence that price pressures remain inadequately controlled, potentially forcing the CBT to either defend its guidance through delayed easing or accept a re-pricing of rate expectations.

Second, the MPC convenes one day ahead of a critical legal event, amplifying headline risk that could disrupt the curve and constrain the CBT's operating flexibility, we assess. As the government hardens its international diplomatic stance, domestic frictions are intensifying, with the CHP's Oct 24 court proceedings particularly vulnerable. Erdogan reportedly has tacit approval from Trump, based on the recent comments from Tom Barrack, to pressure the opposition. We foresee heightened political strain, with potential spillover effects on market sentiment and positioning.

Third, as of today, the two-year benchmark bond interest rate stands around 40.61% and in yesterday's tender the compound stood at 40.46%. These are already close to the recent policy rate of the CBT of 40.5%. So, the markets are conveying limited tolerance for aggressive easing, we think. Last but not least, recent GDP data showed resilient activity. Demand has moderated, but not sufficiently to secure rapid disinflation, in our view. Output gap dynamics and persistent services inflation would argue for measured easing and a cautious tone.

Therefore, when all these are considered, perhaps the best strategy would even be a pause to assess incoming data without adjusting the policy rate. Yet, the CBT likely faces considerable political pressure, given the real sector's struggle with elevated borrowing costs, we think. The manufacturing sector remained in contractionary territory for eighteen consecutive months, we note. Against this backdrop, we expect the CBT to deliver a baseline 150bp cut with restrained communication, though a 200bps reduction could be also delivered should the CBT choose to move faster.

Summary of September rate-setting meeting

MPC rate decision in September

Quarterly Inflation Report for Q3

Monetary policy strategy for 2025

• Next MPC meeting: Dec 16, 2025
• Current policy rate: 4.75%
• EmergingMarketWatch forecast: Hold

The BCCh's monetary policy council held its benchmark interest rate unchanged at 4.75% in its Oct 28 sitting, as was widely expected, and maintained a cautious tone in its brief guidance that suggests the next cut is likely to wait for 2026. While the guidance was deliberately vague about the triggers and timing for a future cut, we would argue that the monetary policy decision tree currently looks simple. We have been forecasting no more cuts in 2025 since the BCCh published its last monetary policy report, but consensus polls ahead of the October sitting showed a majority still forecasting a 25bps cut in December. That scenario remains plausible, the consensus is likely to shift toward a hold in December and a cut in January with the new BCCh guidance. We are leaning toward March for the next cut.

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The monetary policy story looks fairly simple right now. CPI inflation has been above the 3.0% y/y monetary policy target since the pandemic. After hitting a post-pandemic low at 3.2% in Q1 2024, inflation increased and has been stubbornly hovering at 4.0%-4.9% y/y since. The monetary policy rate kept declining through 2024 though, pushing the real interest rate down to neutral. With headline CPI inflation currently at 4.40%, expected to end the year above target at 4.00%, and the nominal policy rate at 4.75%, a cut would be hard to justify. In short, the next rate cut will not come until headline and core CPI inflation get closer to 3.0%, and the question is how close would they need to get.

For more context to the monetary policy story, headline CPI inflation still contains some residual effects of an overdue power price adjustment that took place in 2024-2025 after price freeze of five years. Core inflation, which excludes the power price noise, behaved a little better than headline CPI, but still hovered consistently in a 3.5%-4.0% range.

The real side of the economy is largely neutral for monetary policy currently. The central bank estimates that the economy's output gap is very close to zero, and that the GDP growth composition is relatively balanced, with no particular source of inflationary pressure. There are some concerning spots, for example in persistently weak job creation, but this is something the central bank attributed to a combination of recent reforms that significantly raised labor costs. Lending activity has been weak as well, but starting to trend in the right direction in the last couple of months.

Besides the timing for the next cut, the other big question centers on the terminal rate for this cut cycle. The BCCh estimates that the neutral real interest rate is in the 0.50%-1.50% range, and the point estimate is 1.00%. In nominal terms, since the inflation target is 3.00%, the neutral range would be 3.50%-4.50%, but the BCCh would normally be expected to get to 4.00% in the theoretical case that inflation stays at 3.00%. However, recent attempts to replicate the BCCh's methodology for estimating the neutral range yielded that the range should rise to 0.75%-1.75%, and this is leading many to believe that the rate cut process could eventually end at 4.25% or 4.50%. The BCCh has yet to issue any comment on this discussion.

• Next MPC meeting: Dec 19, 2025
• Current policy rate: 9.25%
• EmergingMarketWatch forecast: Hold
• Rationale: Hawkish board members focus on fighting 5% entrenched inflation, dismissing govt's growth fears, making political factors as crucial as economic fundamentals in setting rates

BanRep appears likely to end 2025 by holding its benchmark rate at 9.25%, staying firm amid persistent inflation and despite political pressure from the government. At its Oct. 31 meeting, the board again voted 4-3 to keep the rate unchanged. Inflation increased for the third consecutive month in September to 5.2%, matching the level seen at the end of 2024. Both survey- and market-based inflation expectations rose and remained well above the 3.0% target for the next two years, justifying the cautious stance.

Core inflation has hovered between 5.3% and 5.4% since June, highlighting the sticky nature of price pressures. In this context, there is little incentive for the board to change policy unless (1) third-quarter growth, to be announced on Nov 18, is significantly weaker than expected; (2) October inflation, due on Nov 10, unexpectedly decreases; or (3) fiscal accounts show a convincing turn toward consolidation. We believe none of these outcomes seems likely.

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Political signals, however, continue to carry significant weight. President Gustavo Petro hinted at this on social media Fri. afternoon, shortly after BanRep's decision was announced, writing on his X account that "the rate will only go down when we elect the next member of the Central Bank's board." Note that, by law, the president can appoint two members during his four-year term upon the recommendation of the finance minister, who chairs the board. Earlier this year, Petro replaced board members Roberto Steiner and Jaime Jaramillo with Laura Moisá and César Giraldo, figures widely regarded by the press and market analysts as loyal to his administration. Moisá, criticized by the financial press for her limited experience in monetary policy, has questioned the view that recent real wage increases have contributed to inflation, directly challenging the arguments of her colleague Mauricio Villamizar. Giraldo has maintained a low public profile, though he is generally seen as sympathetic to the government's narrative of "productive" expansion through looser monetary policy.

The president's post made clear his expectation that his appointees should support a more accommodative stance. Even so, we assess that BanRep's independence appears to remain intact both legally and in practice so far. Since mid-year, the rate decisions have consistently divided the seven-member board, with four members voting to hold and three to cut. Among the latter, two have supported a 50-bp reduction, including the finance minister, while one has favored a smaller 25-bp move.

Governor Leonardo Villar leads the main group opposing easing. He was appointed during Iván Duque's administration. A seasoned veteran of the institution, Villar helped develop BanRep's inflation-targeting framework in the late 1990s and has remained committed to the technical team's orthodox approach. Beside him is Mauricio Villamizar, also appointed by Duque, whose background as a researcher and deputy manager of economic studies at the central bank lends him strong institutional credibility in the eyes of the press and analysts. Villamizar, thus, in his interviews, has been vocal about the inflation risks arising from the expanding fiscal deficit and is seen as a supporter of the bank's technical independence.

Another supporter in this camp is Bibiana Taboada, also appointed by Duque. Despite early criticism over her youth, lack of research experience, and background in monetary policy, she has likely aligned with the technical staff's cautious approach. Her political ties are also noteworthy. She is the daughter of a close associate of ex-president Álvaro Uribe-Vélez, Petro's main rival for decades, which adds another layer of distance from the government's agenda. Hence, we consider it unlikely for Taboada to stop adhering to Villar's and Villamizar's hawkish stance.

Further, one member stands at the center of this quiet tug-of-war: Olga Acosta. Appointed by Petro in 2023, she was expected to align with his economic priorities; however, her record suggests otherwise. A respected economist with years of technical experience, Acosta has so far voted with the orthodox majority, we speculate, perhaps unwilling to risk the institution's credibility in the face of (1) persistent inflation, (2) Petro's threats of a populist minimum wage hike for 2026, and (3) a widening fiscal gap. Her position has preserved the fragile 4-3 balance that has kept policy steady since June. [Note: BanRep, unlike other central banks in the region, which are bound by the inflation-targeting regime (e.g., Banxico, Brazil's BCB), does not disclose individual votes of its board members, highlighting its orthodox nature and, most likely, its reluctance to be challenged.]

For now, the board's independence remains fragile but intact. Unless October's inflation unexpectedly falls or growth data collapses, there is no compelling reason for BanRep to move. The government, which claims that more than 90% of its spending is inflexible, has not presented a credible plan to fix the fiscal deficit. This makes any rate cut both technically and politically difficult to justify.

Overall, BanRep, long regarded as one of Latin America's most technically sound central banks, now finds itself navigating an increasingly volatile political environment. A government eager to please its electorate with lower rates, but that signals higher spending risks, ultimately undermines the very stability it claims to defend. For now, orthodoxy still holds, though the pressure is unlikely to subside before the 2026 elections.

• Current policy rate: 4.50%
• Next monetary policy meeting: Nov 24, 2025
• Expected decision: Hold or 25bps cut

The ceasefire agreement with Hamas reduced the geopolitical risks and raised the expectations that a rate cut might be on the table of the MPC in the next rate decision and some even speculated that this would be done earlier, in an extraordinary meeting. The BoI rejected the rumours and confirmed that the next rate sitting will take place on Nov 24, as scheduled. Also, governor Yaron and deputy governor Abir made statements to media to calm down the expectations, insisting that the MPC will remain prudent. We also think that the chances for a cut have increased but all will depend on inflation developments. Governor Yaron said after the last decision that inflation remains a concern and an end of the war will not automatically result in an interest rate cut hinting that a potential surge in demand might delay any decision for monetary easing. Recall that the MPC left the policy rate unchanged at 4.50% on Sep 29, which was largely expected.

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Inflation continued easing and eventually entered the 1-3% target band in August as it hit 2.9% y/y after exceeding 3% for more than a year. It continued easing to below-expected 2.5% y/y in September. Supply side shortages (like the draft of reservists) might not close fast enough to respond to potential surge in demand and are an important factor that can drive inflation higher, Abir reminded. Moreover, some elements of the consumer basket continue to have large volatility in price developments and rental prices are another risk due to the damages to buildings by Iranian rockets. The truce with Hamas has reduced geopolitical risks, also boosting the local currency, which has been easing inflation in the past months. However, the ceasefire remains fragile despite the efforts of the US to keep it alive. The latest inflation expectations, one of the major considerations the MPC is looking at when deciding on the policy rate, pointed to continued moderation in the inflation environment and the latest forecasters' inflation expectations for the next one year fell to a low not seen since early 2022. There is one more inflation release, for October, before the next rate sitting and we think that this would be the decisive consideration for leaving or cutting the policy rate on Nov 24.

GDP data point to a fall in GDP in Q2 but the BoI explained that this was the sole result of the Iran war and when excluded, GDP has continued increasing in Q2. It also said that high frequency indicators point to a strong recovery in the period since the hostilities with Iran ended and some indicators are at a higher level compared to the pre-Iran war position while others are still catching up. The BoI downgraded its growth forecast for this year in its July and September updates but increased it twice for 2026 as recovery after the wars is expected to be faster. The forecast envisaged an end of the war in early 2026 and therefore, it might turn out that growth might be higher this year, we think. BoI governor Yaron said that there are no indications for difficulties to obtain credit, which shows that there is no hurry for a rate cut. Thus, we think that the BoI would mainly consider inflation developments in its next rate sitting but would not harry with a cut either if it is not convinced that inflation will not start accelerating again. Therefore, we think that both scenarios are equally probable. The research department expects the policy rate to reach 3.75% in Q3 2026, according to the latest macroeconomic forecast update made before the ceasefire was reached. This is not a forecast of the MPC but has likely been endorsed and if fulfilled, this means three rate cuts in the next one year.

Board statements, press briefings, minutes from MPC meetings

Calendar of MPC meetings

Latest BoI macroeconomic forecasts

Monetary policy reports

Bank of Israel Law

The Monetary Committee

• Current policy rate: 18%
• Next monetary policy meeting: Nov 28
• Expected decision: hold

On Oct 10 the NBK delivered a 150bp hike, raising the base rate to 18%. We expected tightening, though our baseline scenario was for a 100bp hike, in line with earlier indications by the bank. Not surprisingly, the NBK highlighted recent CPI inflation dynamics as decisive. We remind that the CPI rate posted 12.9% y/y in September, exceeding NBK's year-end forecast range. In addition, core and seasonally adjusted inflation have been on the rise for a few months, which is a concern. The NBK traditionally sees fiscal stimuli, domestic consumption and credit growth as inflationary factors and these were noted again.

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The bank's assessment of near-term developments is cautious as well. Externally, there is uncertainty in some partner economies, though the impact of domestic tendencies is deemed decisive at present. Specifically, the NBK sees consistent pressures from food and fuel prices, import growth, and the upcoming VAT hike. Its next rate-setting decision will also include an update of its macro forecasts, which may entail an upward revision of the inflation projection for end-2025 or beyond.

In general, the NBK expressed confidence that the steep October hike will prevent a wage-price spiral. It is also confident that the gold purchase mirroring scheme and the revised minimum reserve requirements for lenders will reinforce inflation management efforts. Nevertheless, the bank has said further tightening is still possible next month if inflation dynamics do not stabilise in the short run. At this stage, we are not committing to a hike prediction, but additional data can change this in the next couple of weeks.

• Next policy meeting: Nov 27
• Current policy stance: 2.50%
• Last decision: Oct 23 (Hold)
• Our forecast: Cut by 25bps or Hold
• Rationale: Timing of rate cuts remains uncertain amid resurgence of Seoul apartment prices, better growth prospects

The timing of Bank of Korea's interest rate cuts remains uncertain due to the overheating Seoul real estate market which forced the BOK to stay in hold in its previous three meetings. We remind that the BOK opted to stay on hold in the meeting on Oct 23, but at the same time it maintained its monetary policy easing stance. In terms of future policy outlook, 4 out of the 6 BOK members raised possibility for rate cuts within the next 3 months.

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Bank of Korea is still expected to provide further support to the economy before it ends the rate cutting cycle as South Korea's growth rate remains under the estimated potential growth rate of 2%. At the same time, the urgency to cut rates has diminished due to the stronger-than-expected GDP growth rate in Q3 and the finalization of the trade deal between the US and Korea. Thus, we think that BOK has the option to either cut the policy rate by 25bps on Nov 27 or delay the resumption of rate cuts until 2026 depending on factors such as the situation in the Seoul real estate market. In our view, the BOK is still likely to cut rates by at 50-75bps before it reaches its terminal rate.

Meanwhile, BOK's decision to hold the policy rate was surprisingly supported by President Lee Jae-myung in an interview on Oct 27 who said that a rate cut would have further ignited real estate speculation. Lee stated that the housing market is a "ticking bomb" and the country faces a very dangerous potential crisis due to excessive real estate investment. In addition, he said that fiscal policy and economic policy are more important than monetary policy easing. We think these comments give significant leeway to Bank of Korea to pursue housing market stabilization policy if it so desires.

Growth figures also surprised on the upside as the Korean economy expanded by 1.2% q/q and 1.7% y/y in Q3 on the back of solid domestic demand performance. Even though growth is expected to slow down somewhat in Q4 due to the disappearance of government stimulus, the rebound of consumer demand and the stabilization of the construction investment are certainly positive developments. Meanwhile, the inflation rate remains stable as CPI rose by 2.1% y/y in September and the central bank still expects inflation to remain close to the 2% range throughout 2026. The Korean won exchange rate could be also expected to stabilize after the US-Korea trade deal.

We certainly think that the main factor to watch for in the coming month before the November meeting is the trend of apartment prices in Seoul. The latest available apartment price growth rate presented by REB showed that apartment prices rose by 0.50% w/w in the week ending Oct 20, which is much higher than what can be tolerated by the BOK, in our view. If apartment prices stabilize after the government announced new housing market regulations on Oct 15, we think that the BOK will likely cut the policy rate by 25bps in November. On the other hand, if apartment prices continue their upward trend despite government regulations, we think that the BOK will delay rate cuts until next year.

Useful Links

Monetary Policy Decisions

Calendar of MPC meetings

• Next policy meeting: November 6, 2025
• Current policy rate: 2.75%
• Our forecast: Hold
• Last decision: Hold (September 4)
• Rationale: better-than-expected external demand and sustained strength in domestic demand to prompt BNM to maintain status quo on key rate in near-term

We expect Bank Negara Malaysia to leave the overnight policy rate (OPR) unchanged at 2.75% in its last policy meeting of 2025. Inflation remains contained, although both headline and core inflation edged up to four-month highs in August. The economy has performed better than previously feared, supported by solid household spending, robust private investment, and stronger-than-expected exports. However, the outlook remains subject to multiple risks - particularly those related to potential US tariffs on semiconductor imports and the absence of frontloading activity, which has been instrumental in supporting exports so far this year.

Last month, BNM kept the key rate steady, following a 25bps cut in July - its first rate reduction in five years. The central bank turned slightly more optimistic about Malaysia's economic prospects, citing resilient domestic demand and easing global trade uncertainties. It stated that the current monetary policy stance remains appropriate and supportive of growth. This guidance, which was absent from the July monetary policy statement, suggests that the OPR will likely remain on hold in the near term and reinforces our view that the July adjustment was a one-off move rather than the start of an easing cycle.

That said, another rate cut in 2026 cannot be ruled out if the growth outlook deteriorates. With inflation in check and the ringgit strengthening (up 6% ytd against the US dollar), BNM has sufficient policy space to deliver another rate cut should conditions warrant.

GDP growth

BNM in July forecast Malaysia's economy to expand in the range of 4.0%-4.8% in 2025. The projection, which was revised down from 4.5%-5.5% to account for the negative impact US tariffs, is in line with the recent growth estimates of the World Bank and the Asian Development Bank. Nevertheless, that would mark a deceleration from 5.1% growth in 2024, as export growth slows. In the first half, growth came in at 4.4%, underpinned by sustained consumer and government spending as well as investment activity, highlighting solid domestic fundamentals.

Domestic demand is expected to remain a key growth driver in 2026 amid lower borrowing cost, favourable labour market conditions, and continued high realization of approved investments. In addition, strong overseas demand for electrical and electronics goods, which account for nearly one-fifth of total manufacturing output, together with robust tourism activity could further lift growth prospects. While exports have stayed resilient so far, rising 3.9% y/y during Jan-Aug despite weaker oil and gas shipments, US tariffs, including a potential levy on semiconductors, pose a significant downside risk to the outlook.

That said, Malaysia's export competitiveness may remain largely intact, given that other major export-oriented ASEAN countries generally face similar tariff rates. Moreover, the government has expressed confidence that most of Malaysia's semiconductor exports to the US will be shielded from the Trump's proposed 100% tariff on imported chips. In August, Investment, Trade and Industry Minister Zafrul Abdul Aziz told the parliament that 65% of Malaysia's semiconductor exports to the US originate from US companies operating in Malaysia, allowing them to qualify for tariff exemption.

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Inflation environment

Price pressures remain subdued, with CPI inflation averaging 1.4% in Jan-Aug, down from 1.8% in the same period last year. Consequently, BNM in July lowered its inflation forecast to 1.5%-2.3% in 2025, down from the earlier projection of 2.0%-3.5%.

The central bank continues to have benign outlook for inflation, noting that both headline and core inflation (averaging 1.9% in Jan-Aug 2025, up from 1.8% in Jan-Aug 2024) are likely to remain moderate this year and in 2026 due to contained global cost conditions and absence of excessive demand pressures. It reiterated that domestic policy reforms - both announced and upcoming, such as SST expansion and rationalization of RON95 petrol subsidy - are likely to have limited impact on inflation in the current environment.

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Conclusion

All in all, we expect BNM to maintain the OPR in the near term, provided growth remains within the central bank's forecast range and inflation stays under control. The central bank is likely to adopt a wait-and-see approach for an extended period to assess the impact of the recent rate cut as well as the earlier 100bps reduction in the statutory reserve requirement (SRR) ratio in May, which brought it down to a 14-year low of 1%. The SRR cut is expected to inject around MYR 19bn in liquidity into the banking system.

• Next MPC meeting: Nov 12, 2025
• Current policy rate: 6.50%
• EmergingMarketWatch forecast: Hold

Rationale: Romania's central bank will very likely maintain the key policy rate at 6.50% in the Nov 11 MPC meeting and will very probably make no changes in Q1 2026 due to the high inflation that picked up in September to below-expected 9.88% and it is seen to moderate very slowly in the following quarters, due to the government fiscal tightening and the expiration of the electricity price caps in July. A more pronounced decline in inflation is anticipated starting in H2 2026, supported by statistical base effects, which in turn increases the probability of rate cuts, in our view.

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The high inflation is not expected to result in a rate hike either, as Governor Mugur Isarescu previously assured, adding that monetary policy was partly aimed at avoiding recession risks. He also said that there were risks for a recession mainly due to external factors because of the export-dependency of the industrial sector, to which massive reduction in consumption is to contribute too. Acceleration of the EU funds absorption might offset those and the country might avoid a recession, however, the governor added. Isarescu said that economic growth might linger in the 0-1% range in the next year, according to his estimates.

Inflation edged up to 9.88% y/y in September from 9.85% y/y in August, but came in below expectations. The upside was tempered by a sharper moderation in food prices and a faster-than-anticipated fading of inflationary pressures stemming from the removal of electricity price caps. The central bank see inflation to likely remain above 9% at the end of this year after peaking in September, NBR governor Isarescu previously said, meaning that the inflation forecast of the NBR for 8.8% y/y at the end of 2025 is already outdated as it did not include the July and August prints.

The fiscal consolidation measures are going to have a containing effect on private consumption and inflation will start falling gradually already at the start of 2026 and more visibly as of Q3 2026 after the higher base enters calculations, according to the NBR. Thus, inflation will enter the target interval (2.5%+/-1pp) at the end of 2026 and will continue slowing down to 2.7% y/y in Q2 2027 as the fiscal consolidation measures are to assist in stabilising the country's economy.

• Сurrent policy rate: 17.0%
• Next monetary policy committee meeting: Oct 24
• Expected decision: hold

Forecasting the next CBR rate decision is more difficult than usual, seen also in the market consensus which is split almost equally between a hold and a 100bp rate cut. On one hand, arguments for keeping the rate unchanged are an increase in core inflation, distorted by one-off factors, as well as a sharp rise in inflation expectations of companies and professional forecasters. On the other hand, arguments for a cut include too moderate credit activity, weakening in demand, and a rather neutral fiscal stimulus for now. This is taking place amid an uneven external environment, which may require additional measures to support economic activity. However, given that the CBR has often acted more hawkishly than even the market's most cautious forecasts, we expect it to keep the key rate at 17.0% or cut by a below-consensus 50bps.

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Inflation reached 8.5% y/y as of Oct 13, gradually increasing since September. SAAR inflation also picked up to 6.7% in September, way above the 4% inflation target again. Thus, the average SAAR came in at 6.4% in Q3, compared to 4.8% in Q2. However, we note that Q3 inflation is still significantly lower than CBR's expectations (8.5%), but in Q4 it should be higher as the CBR expected it closer to 4%. The indexation of utility tariffs certainly contributed to this acceleration, but was not the main factor this year. Since the beginning of September, we have observed an earlier-than-usual rise in fruit and vegetable prices and accelerating fuel price growth. Moreover, the increased inflation rate for meat products and drugs also contributed to the overall negative result. Growing prices are explained by lack of supply rather than high demand. Following the rising inflation, as well as very early price adjustments ahead of the VAT increase taking effect in early 2026, inflation expectations in October accelerated and reached 19.6% among companies - the highest level since March. Analysts surveyed by the CBR also raised their expectations for both the current year and 2026. Household inflation expectations for October are yet to be published, while the improved data for September are likely outdated.

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Bank lending rates in September still suggest overcooling as growth in lending to households dropped further to 2.8% y/y due to muted demand, while lending to companies eased to 9.5% y/y amid lower output. Both sectors continue to borrow more modestly also in monthly terms with the smallest decrease observed in mortgages, which rely on subsidies. The same is true for savings in both y/y and m/m perspective. Back in September, it was expected that a small cut would make the market anticipate a longer hawkish stance and decrease demand for credit. In our view, that is happening now. Such low credit activity suggests a policy rate cut, but as the CBR is long concerned with demand that is too high for supply to keep up with, we doubt that it can be the main argument.

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Regarding the new 2026 budget, the CBR clearly wants to present it as a disinflationary factor that does not force it to take a more hawkish monetary stance. CBR officials commented that the budget law does not over-expand expenditures and moves towards increasing indirect taxes, instead of an even bigger deficit, which is welcome. They also emphasized that this would lead to only a slight adjustment to the macro forecast. In our view, despite the legitimacy of all these arguments, the regulator may still fear an increase in the deficit by the end of this year and early next year due to advance payments based on the pattern of the last two years. Doubts may also lie in the area of revenue collection.

Next MPC announcement: November 20, 2025

Current policy rate: 7.0%

EmergingMarketWatch forecast: 7.0%

We maintain our forecast for a hold of the repo rate at 7.0% in November, consolidating the progress made in anchoring inflation near the new 3% objective. The CPI print in September at 3.4% y/y confirmed that the disinflation cycle remains broadly intact, with only mild upward pressure from base effects and rentals. Core inflation edged up to around 3.2% y/y, while food and fuel served to temper overall price momentum. Following cumulative cuts of 125 bps since late 2024, the MPC has shifted from active easing to consolidation, signalling that policy credibility now takes precedence over additional stimulus.

The data show inflation stabilising close to the lower end of the 3-6% target band (despite the expected acceleration). Food inflation eased to 4.5% y/y, driven by declines in vegetables and dairy, while fuel prices remained in deflation for a thirteenth month, down 2.2% y/y. However, rental inflation accelerated modestly. With the SARB projecting inflation to average 3.4% in 2025, 3.6% in 2026, and settle at 3% by 2027, risks appear balanced but still warrant vigilance.

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Governor Lesetja Kganyago's recent remarks at the SA Tomorrow Investment Conference clarify that the central bank's strategy aims at "opportunistically disinflating" the economy and entrenching expectations, not chasing near-term growth. He has stressed that trade unions' inflation expectations are now lower than those of businesses noting that business expectations remain "sticky." They might be sticky but there is a central bank that means business, Kganyago was quoted as saying, and we will bring them down.

The governor also linked the lower inflation target to South Africa's sovereign risk premium, arguing that credible disinflation reduces the cost of borrowing and aligns the country with its peers. If Fitch Ratings are correct in predicting the formal adoption of the 3.0% policy anchor by the Treasury in the MTBPS, the gains will become more entrenched and will continue to support the lowering of the cost of borrowing.

Global dollar softness has helped the rand strengthen but the trade-related protectionist risks continue to linger and still constrain emerging-market appetite, indicating the need for caution amid volatile broader environment. The SARB's communication has persistently emphasised that monetary policy can only do so much without structural reform and fiscal coordination.

Overall, we expect the majority of the MPC to prefer a hold, consolidating progress on inflation expectations and assessing the transmission of earlier cuts. Some of the members may still argue for a 25bps reduction, but we suspect the arguments to patience to prevail. With inflation to be anchored to the target over the policy horizon, growth stabilising, and credibility strengthening, the SARB can shift towards further easing depending on inflation expectations and actual prints next year.

Monetary Policy Committee Statement

Monetary Policy Committee Forecasts and Assumptions

Monetary Policy Review

Next Policy Meeting: Nov 26, 2025

• Overnight Policy Rate (OPR): 7.75%
• Previous Decision: Hold (Sep 23)
• Our Forecast: Hold
• Rationale: Growth has rebounded and inflation has normalised, but reserve accumulation remains slow and external risks argue for caution

The Central Bank of Sri Lanka (CBSL) is expected to maintain its policy rate at 7.75% in the coming review, extending its pause after a series of early-2025 rate cuts that totalled 250 bps. Having front-loaded monetary easing to spur recovery, the CBSL has since shifted to a more measured stance, prioritising currency stability and reserve rebuilding. The monetary authority continues to signal confidence in the price trend, while acknowledging persistent vulnerabilities in the external and fiscal accounts.

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The policy pause coincides with stronger macro indicators. The IMF and Sri Lankan authorities reached a staff-level agreement on the fifth review of the USD 3bn Extended Fund Facility (EFF), clearing the way for a USD 347mn disbursement once approved by the Executive Board. This will bring total disbursements since 2023 to USD 2.04bn, reaffirming external support for the government's reform agenda. The IMF assessment notes that fiscal reforms have been sustained, growth has exceeded expectations, and the external position is gradually strengthening.

Inflation Outlook

Inflation has normalised after nearly a year of deflation. Colombo consumer prices rose 1.5% y/y in September 2025, up from 1.2% in August, marking the second consecutive month of positive inflation. The rebound was led by higher food prices - particularly coconuts, sea fish, milk powder, and private education fees - while fresh fruit and fuel prices fell. Food inflation accelerated to 2.9% y/y, and non-food inflation eased to 0.7%, with mild price gains across clothing, household goods, and education.

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The CBSL expects headline inflation to edge gradually toward its 5% medium-term target by mid-2026, as domestic demand firms and cost pass-through normalises. Underlying pressures remain contained; transport and utility prices continue to weigh on the index, offsetting pockets of price increases elsewhere. While inflation has stabilised, weak nominal wage growth and subdued credit expansion suggest that aggregate demand is still below potential. The CBSL is therefore likely to maintain its wait-and-see approach, allowing monetary transmission to consolidate before taking further steps.

Growth Momentum

The economic recovery continues to gather pace. Real GDP expanded 4.8% y/y in H1 2025, underpinned by industrial revival and improving domestic consumption. August's industrial output growth accelerated to 7.6% y/y - the strongest so far this year - as manufacturing rebounded across key categories. Apparel production surged 14.7% y/y on stronger external orders, while refined petroleum output jumped an exceptional 488% following refinery restarts. Metal fabrication (+48.7%), mineral products (+10.7%), and machinery (+9.3%) all recorded solid gains, reflecting both private and public investment momentum.

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The PMI for manufacturing rose to 55.4 in September, supported by higher new orders and inventory accumulation ahead of the year-end season. However, light manufacturing sectors - such as paper, plastics, and furniture - remain weak, revealing a still-fragile industrial base. The World Bank projects real GDP growth at 4.6% in 2025, moderating to 3.5% in 2026 as base effects wane and external demand stabilises. While macro stability has been restored, output remains below pre-crisis levels and poverty remains elevated, roughly double 2019 levels.

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External and Fiscal Conditions

Sri Lanka's external position has strengthened but remains structurally delicate. The current account surplus rose 7% y/y to USD 368mn in August - the eighth consecutive monthly surplus - driven by resilient worker remittances and modest export growth. Cumulative external surplus reached USD 2.04bn for January-August 2025. The trade deficit narrowed slightly to USD 414mn as exports rose 4.1% y/y, while imports increased 2.6%, reflecting controlled domestic demand and import substitution.

Gross official reserves stood at USD 6.2bn at end-September, covering about 3.7 months of imports - an improvement from the crisis years but effectively stagnant since late 2024. The CBSL has resumed modest FX purchases, adding USD 177mn in September, but these gains have been partly offset by external debt service and IMF repayments averaging USD 100mn per month. The rupee has depreciated 3.3% year-to-date, a modest adjustment that reflects both valuation effects and controlled market flexibility.

On the fiscal side, revenue overperformance continues to anchor confidence. Collections from motor-vehicle imports and excise taxes have outpaced targets, supporting primary balance improvement. Debt restructuring is nearing completion, with new bilateral deals - including an agreement with Australia to reschedule USD 39mn - further solidifying external creditor coordination.

Outlook

The CBSL faces a narrow policy corridor: growth is improving, inflation is low, and fiscal consolidation is on track, yet reserves remain stagnant and the external environment is fragile. With inflation below target and credit demand still weak, some easing bias persists, but premature cuts could reignite currency volatility. We expect the CBSL to hold rates at 7.75% through the next review, maintaining a neutral-to-cautious stance. A rate cut may emerge in Q1 2026 only if inflation remains below 3% and reserves show sustained improvement.

• Next MPC meeting: Dec 17
• Current policy rate: 1.50%
• EmergingMarketWatch forecast: Hold or 25bp cut
• Rationale: MPC statement of Oct 8

A hold decision and a 25bp policy rate cut both seem possible at the next meeting of BOT's Monetary Policy Committee (MPC) on Dec 17, the last one for 2025, in our view. On Wednesday, the MPC voted 5 to 2 to keep the policy interest rate unchanged at 1.50%. Two MPC members favoured a 25bp cut. The decision was a moderate surprise, as the market expectations were for a 25bp cut. This was the first MPC meeting under Governor Vitai Ratanakorn.

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On Wednesday, the MPC assessed that monetary policy should be accommodative to support the economy. The transmission of previous key rate reductions to the economy is ongoing. Most MPC members prioritised the timing and effectiveness of monetary policy given the limited policy space and hence supported a hold decision. Two members supported further easing to ensure that financial conditions stay conducive to economic recovery, help support liquidity and mitigate the debt burdens faced by SMEs and vulnerable households.

The prevailing monetary policy framework aims at maintaining price stability, supporting sustainable growth and preserving financial stability. The committee will monitor macro-financial developments and risks closely. The MPC is ready to adjust the monetary policy stance if the economic and inflation outlook shifts.

One argument in favour of a policy rate cut in December is the expected deceleration of economic growth in 2026. The below-target inflation is another likely reason for a rate reduction, as well as the fewer-than-previously-expected foreign tourist arrivals. If it persists, the strong exchange rate of the baht against the US dollar will be also an argument in favour of a rate reduction. Reasons supporting a hold decision could be, among other things, the still high household debt and the need to preserve policy space.

Economic growth

The MPC forecasts GDP growth of 2.2% in 2025 and 1.6% in 2026. In June, the projections were 2.3% and 1.7% respectively. Thailand's economy expanded by 2.5% in 2024.

The goods exports have begun to experience the effects of US trade policies. The impact is smaller than previously expected, though. The value of goods exports is forecast to rise by 10.0% this year and fall by 1.0% next year. In June, the two growth rates were seen at 4.0% and -2.0% respectively. The value of merchandise exports climbed 5.9% in 2024.

The MPC projects 33.0mn foreign tourists this year and 35.0mn next year. In June, the projections were 35.0mn and 38.0mn respectively. There were 35.5mn foreign tourists in 2024.

The MPC forecasts moderate growth of private consumption and noted further support from government stimulus measures. The central bank forecasts that private consumption will rise by 2.1% in 2025 and 1.8% in 2026. In June, the two growth rates were expected to be 2.0% and 1.7% respectively. Private consumption increased by 4.4% in 2024.

Inflation

Headline inflation is now projected at 0.0% in 2025 and 0.5% in 2026, below the previous assessment mainly because of energy and raw food prices. In June, the two rates were seen at 0.5% and 0.8% respectively. The inflation is anticipated to stay subdued mainly due to supply-side factors, and to gradually return to the 1-3% target band by early 2027.

According to the MPC, deflationary risks remain low as the prices of most goods and services keep rising or stay unchanged. Core inflation is forecast at 0.9% in each of 2025 and 2026.

The private sector's medium-term inflation expectations are well-anchored within the target range.

Lending

In line with previous key rate cuts, the interest rates in the banking system and the financial markets have decreased. Nonetheless, overall credit growth remains negative because of soft demand from large corporates, debt repayments, and cautious lending to high credit risk borrowers, particularly SMEs and low-income households. The growth of business and retail loans hence remained negative. While the credit quality is broadly stable, the SME loan quality deteriorates.

The MPC also noted the appreciation of the baht against the US dollar, which affected some exporters. There is a need to monitor credit growth and movements of the baht, the press release said. The MPC supports helping vulnerable groups with additional targeted financial measures.

Exchange rate

The exchange rate of the Thai baht was USD/THB 32.564 on Oct 8, which compares with USD/THB 32.305 on Aug 13, the date of the preceding MPC meeting.

On Wednesday, the MPC noted the appreciation of the domestic currency against the US dollar since early 2025. The effective exchange rates have been relatively stable.

The strengthening of the baht affected exporters significantly, especially in agricultural, agro-manufacturing and textile industries, as well as unhedged SME exporters, the BOT said. The MPC hence sees a need to monitor exchange rate movements.

Further reading

MPC decision of Oct 8

Schedule of MPC meetings

Edited minutes of MPC meetings

Monetary policy report

• Current rate: 15.5%
• Next rate decision: Oct 23
• Our forecast: on hold

The central bank (NBU) has left the key policy rate at 15.5% four times since last spring. Another on-hold decision is likely also tomorrow, although the NBU may also consider a cut, as last summer it planned easing by end-2025. Policy easing would appear premature now, amid the war escalation when Russia has been threatening to black Ukraine out ahead of winter. Also the IMF reportedly pushes for some hryvnya devaluation, which would slow disinflation, and uncertainty about budget financing increased recently.

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The NBU's disinflation forecast for H2 2025 has materialised against the background of relative macroeconomic stability and significant foreign aid inflow, slower real wage growth, a good vegetable harvest which eased the food price growth, and on base effects in the utility sector. Headline CPI inflation fell to 11.9% y/y in September from 13.2% in August, which was lower than anticipated by the NBU. At the same time, core inflation at 11.0% y/y in September, down from 11.4% in August, was in line with NBU expectations.

All MPC members were in favour of an on-hold decision at the Sep 10 key policy rate discussion, just like in April, June and July, according to the minutes published by the NBU on Sep 22. The MPC members agreed that there should be room for starting an easing cycle in Q4 2025. At the same time, they differed on its pace. Most of them agreed that the key rate should be cut to 14.5% by end-2025 and further to 12.5% by end-2026, as outlined by the NBU in the July macroeconomic report. But several MPC members advocated a slower pace, to 13%-14% by end-2026.