• 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.

• Copom meeting: Sep 15-16, 2026
• Current policy rate: 14.00%
• EmergingMarketWatch forecast: 25-bp cut (to 13.75%)

IPCA-15 inflation saw deflation of 0.40% m/m in August, taking the cumulative print to 4.24% y/y, which is below the 4.50% upper limit of the +/- 1.50-pp fluctuation band around the 3.00% target. This marked the first deflation reading since August 2025 and came in below the consensus expectation. Although deflation is likely to be temporary, the data will likely help the Copom cut its benchmark Selic rate by 25bps to 13.75% at the next policy sitting on Sep 15-16.

The recent deceleration of economic activity will also support a cut in September. The committee's tight monetary policy implemented in 2025 continues to weigh on domestic activity, as economic activity fell m/m in July for the first time in 2026. FGV's Consumer Confidence Index (ICC) also suggests that monetary tightening is gradually weighing on the household consumption of all income levels, with the ICC falling further below the neutral mark in August.

Acting as a potential future brake on policy easing is fiscal policy, which continues to be at the center of Copom technical discussions as the October elections approach. As a fiscal adjustment remains broadly inevitable in 2027, President Lula da Silva has reinforced his fiscal commitment through his finance minister, Dario Durigan, but a lot of uncertainties persist about how effective fiscal measures under another Lula administration would be in curbing the pace of public debt growth and over what horizon. This uncertainty has pressured the FX rate, which is now at a more depreciated level than it was before the official beginning of campaigns in August. A persistently depreciated FX rate remains an upward inflationary risk for the committee.

Overall, the continued easing of inflation and the deceleration of economic activity are likely to allow the Copom to cut the Selic by 25bps to 13.75% at its September policy meeting, generating total easing of 125bps since March. Looking further ahead, if the disinflationary trend proves to be more consistent than anticipated and economic deceleration strengthens, the Copom could choose to continue cutting the Selic at a 25-bp pace per meeting despite elevated uncertainties stemming from the electoral cycle and the external environment. On the other hand, if the uncertainties become more pressing, the Copom could choose to pause the ongoing calibration cycle to better assess their potential impact on price levels.

• Next MPC meeting: Sep 17, 2026
• Current policy rate: 3.75%
• EmergingMarketWatch forecast: Hold

Rationale: The CNB board has softened its hawkish stance a bit after the MPC meeting in August, though it will likely remain vigilant. The attention is firmly on domestic developments, with core inflation, labour market developments, and lending to households being in the focus of board members currently. Yet, the latest staff forecast implies stable interest rates for an extended period of time, and we got the impression that the board is fine with such a scenario, at least for now. There is more information to come about the MPC meeting in August, such as its minutes, but we doubt that the board is having second thoughts about its decision to hold the policy rate in August.

The situation may still change before the MPC meeting in September, as we are about to get more labour market data, such as the Q2 wage print (in early September), as well as price data until the end of August. Furthermore, pressure from food prices may start rising again, given that global food prices have already been on the rise. Moreover, tension in the Middle East may escalate once more, as the US-Iran war is nowhere near a permanent resolution. Meanwhile, household spending is expected to remain robust, fuelled by solid wage growth and an accelerating increase in consumer lending. The property market remains overheated, as despite higher lending rates, property prices are still rising at an elevated rate.

Thus, our expectation remains tentative, and may change based on new economic data. As we have argued several times, we continue to expect another 25bp rate hike in 2026, the only thing we are not certain about is its timing. If the economy shows overheating signs early, then a 25bp hike in September will be on the table. As far as external factors are concerned, we believe that developments related to the US-Iran war will carry a somewhat lower weight, as long as there are no visible second-round effects on inflation.

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Further Reading:

CNB board statement from latest MPC meeting, Aug 6, 2026

Post-meeting press conference, Aug 6, 2026 (in Czech)

Q&A after the latest MPC meeting, Aug 6, 2026

Minutes from the latest MPC meeting, Aug 6, 2026

Monetary Policy Report, August 2026

Macroeconomic forecast, August 2026

Meeting with analysts, Aug 7, 2026

CNB board profile

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

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

• Next MPC meeting: Aug 20, 2026
• Current policy rate: 19.5%
• EmergingMarketWatch forecast: 19.5%

The next MPC meeting is on Aug 20, and it is widely believed that the committee will keep interest rates on hold as geopolitical risks and inflationary pressures have intensified again. The MPC has already kept the policy rate at 19.5% for three consecutive meetings, reflecting its cautious monetary policy approach amid elevated supply-side inflationary risks. We note that CPI inflation quickened to 14.9% y/y in July - although that was mostly due to a low base effect - but renewed tensions in the Middle East, a 12% electricity price increase, and a likely fuel price adjustment in September, are likely to push inflation even higher in the coming months. Inflation is also driven by structural factors such as surging housing rents, high M2 growth rates, persistent fiscal deficits, and fragile supply lines. Further, capital outflows intensified in July, which makes a rate cut look unlikely at the moment. The central bank has revised up its inflation forecasts for the medium term because of the Middle East conflict, as Egypt is vulnerable to supply chain disruptions, energy imports, and investor sentiment. CBE expects annual inflation to average 16-17% y/y in 2026 - thus exceeding the 7% +/- target for Q4 2026 - before moderating to 12-13% in 2027 and eventually falling to single digits during H2 2027.

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Despite several months of heightened uncertainty and energy shocks, Egypt appears stable and resilient to the ongoing Middle East crisis. This is not the first time CBE is confronted with capital flight triggered by a major external shock, but external financing support, an appropriate monetary stance, and government commitment to fiscal consolidation have all helped Egypt navigate through the current crisis. Importantly, the CBE has refrained from intervening in the FX market to shore up the pound, consistent with its commitment to a flexible FX regime and the broader policy framework agreed with the IMF. The pound has weakened in recent weeks on the back of portfolio outflows triggered by the new hostilities in the Gulf and the Red Sea.

Monetary Policy Committee Statement

Monetary Policy Review

Monetary Policy Committee Meeting Schedule

• Next MPC meeting: Aug 25, 2026
• Current policy rate: 5.75%
• EmergingMarketWatch forecast: 25bps rate cut
• Rationale: Inflation slows down further, Mid-East conflict does not shake MPC resolve to continue rate cuts till September

The monetary easing cycle is set to continue in August, based on the monetary policy guidance issued by the MPC at its rate-setting meeting in July. The MPC continued the rate-cut cycle with a 25bps rate cut in June, matching the policy path that was set out in June. Importantly, the policy guidance remained geared towards additional loosening as the MPC reiterated that it saw room for further cuts in the summer in case the favourable developments persisted. The July rate decision and guidance came against the background of renewed hostilities in the Middle East and a renewed rise in global energy prices, so the MPC was clearly undeterred in its loosening policy by these developments. We therefore see no reason for the MPC to back off in August. Fuel prices have remained comparable to the former price caps for the time being, so the upcoming inflation data should remain modest and should not present grounds for calling off the announced rate cut, in our view. The escalation of the Iranian conflict probably only convinced MPC members against more aggressive rate cuts, we think. External MPC member Zoltan Kovacs had voted for a steeper 50bps rate cut in June, while the July decision for a 25bps rate cut was unanimous, according to the meeting minutes.

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The rate-cut cycle will be reconsidered in September, based on the updated NBH forecast in the next Inflation Report, the MPC confirmed in July. It maintained the emphasis that the real interest rate will be kept positive during the easing cycle, which we consider a sign for its preference for a stronger forint. Varga acknowledged the recent forint depreciation, speaking after the July meeting, but stressed that the NBH did not have an exchange rate target. The forint can be considered neither strong nor weak at present but it has remained stable, he commented and added that the NBH rather looks to avoid the significant swings in the exchange rate that were characteristic for the past periods. We think that he still implicitly defended a stronger forint as he stood by the need for a high real interest rate for the sake of guaranteed access to financing. The MPC also reiterated in its July decision text its focus on financial market stability, especially forint stability, in order to anchor inflation expectations and support price stability.

Lower-than-expected inflation and moderating inflation expectations created opportunities for easing, the MPC explained in July. The decline in the domestic risk premium proved to be sustained as well, it remarked, although it indirectly admitted that the easing stance was subject to constraints from expectations for rate tightening by the ECB, the Federal Reserve and the Bank of Japan. Headline inflation eased to 1.2% y/y in July, while the NBH had expected it to gradually move up to around 2% y/y. The inflation slowdown still masked some renewed pressure on services inflation as the expiration of the voluntary price restrictions on telecoms and financial institutions resulted in fresh price hikes in these two sectors, we note. The continued moderation in inflation expectations, however, should still support further monetary policy easing, we expect.

Post-meeting MPC statement from July rate-setting meeting

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

Minutes from July MPC rate meeting

Inflation Report - Q2/2026

MPC meeting calendar 2026

• Next MPC meeting: October 5-7, 2026
• Current policy rate: 5.25%
• Last decision: Hold (August 5)
• Our forecast: 25bps hike
• Rationale: Rising food and fuel inflation owing to a multitude of external risks alongside sustained INR depreciation will prompt the RBI to hike rate in October.

The RBI's August decision confirmed that the easing cycle is over and that the policy debate has shifted from whether to cut rates to when tightening should begin. Although the MPC kept the repo rate unchanged and retained a neutral stance, it acknowledged that food, fuel and other input-cost pressures could broaden into more generalised inflation. With inflation projected to rise sharply in the second half of FY27, domestic growth remaining resilient and the rupee still exposed to oil and capital-flow pressures, we expect the MPC to raise the repo rate by 25 bps at its next meeting. The MPC kept the repo rate unchanged at 5.25% at its August 3-5 meeting. The standing deposit facility rate remained at 5%, while the marginal standing facility rate and bank rate were held at 5.5%. This was the fourth consecutive pause following cumulative rate cuts of 125 basis points between February and December 2025.

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Inflation environment

Retail inflation rose to 4.4% y/y in June from 3.9% in May, moving above the RBI's 4% target for the first time since January 2025. Although inflation remains within the 2-6% tolerance band, the breach of the midpoint is significant because it reduces the MPC's ability to look through repeated supply shocks. The RBI noted that generalised inflation pressures remain modest, but warned that higher food, fuel and other input costs could become more broad-based. Wholesale inflation rose to 9.9% y/y in June, while the Output Producer Price Index increased by 9.6%. These indicators suggest that firms are facing substantially stronger cost pressures than are currently visible in consumer prices.

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The latest PMI data reinforce this concern. Input-cost inflation eased across manufacturing and services in July, but firms continued to report higher transport, fuel, labour and material expenses. Selling-price inflation also strengthened in services, indicating that businesses are increasingly passing higher costs on to consumers.

Food inflation remains vulnerable to uneven rainfall. Although the cumulative monsoon deficit narrowed in July, rainfall distribution has remained irregular, with shortages in parts of east and northeast India. El Niño continues to pose a risk to the timing and geographical spread of rainfall, particularly for paddy, pulses and oilseeds. Fuel is the larger external risk. Global crude prices remain volatile amid geopolitical tensions, while higher energy costs are feeding into freight, logistics and production expenses. Government tax reductions and supply-side measures have limited the immediate pass-through, but these interventions carry a fiscal cost and cannot fully offset a prolonged oil-price shock. Further, according to the RBI's monetary policy statement, the quarterly inflation trajectory remains uncomfortable. The central bank expects inflation to average 5.3% in Q1, 4.7% in Q2, 5.9% in Q3 and 5.5% in Q4 FY27. In our view, this profile leaves limited room for another passive pause, particularly if oil and food prices remain elevated.

Growth

The economy remains sufficiently resilient to absorb a limited increase in rates. The RBI raised its FY27 GDP growth forecast to 6.7%, with quarterly expansion projected at 7% in Q1, 6.4% in Q2, 6.5% in Q3 and 6.8% in Q4. High-frequency indicators point to steady domestic demand. Private consumption remains robust, while investment is being supported by construction activity, capital-goods demand and bank credit. External demand has also held up, with strong services exports accompanied by a recovery in merchandise shipments.

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Momentum is nevertheless moderating. The manufacturing PMI fell to 53.5 in July from 54.2, its lowest level since August 2021. The services PMI declined more sharply to 53.3 from 57.4, marking the weakest expansion in 53 months. The composite PMI fell to 54.3, its lowest since March 2022.

The slowdown argues against aggressive tightening, but not against a precautionary 25bps increase. Output and new orders remain in expansion territory, hiring continues and capital-goods manufacturers are outperforming consumer-goods producers. The growth backdrop therefore provides the MPC with greater room to prioritise inflation control.

External sector

The external account remains an important constraint. India's merchandise trade deficit widened to USD 30.4bn in June from USD 28.2bn in May and USD 19.1bn a year earlier. Imports rose 31% y/y to USD 70.8bn, outpacing a 16% increase in exports.

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The import surge was driven by crude oil, electronics and gold. Higher oil imports reflect the global energy shock, while strong electronics imports point to resilient domestic and investment demand. Elevated gold imports add pressure to the current account and signal continued household demand for imported stores of value.

The rupee remains exposed to oil prices, portfolio flows and movements in the US dollar. The RBI has relied on spot and forward-market intervention, alongside measures intended to attract foreign capital, to contain excessive volatility. These tools can smooth currency movements, but they cannot indefinitely offset unfavourable interest-rate differentials or a persistent deterioration in the trade balance.

Policy outlook

We expect the MPC to raise the repo rate by 25bps at its next meeting. The move would be precautionary and aimed at preventing a supply-led inflation shock from becoming embedded in expectations and underlying price pressures. The case for tightening rests on three factors. Inflation is above the 4% target and is projected to rise close to 6% in Q3. Growth remains resilient enough to absorb a limited increase in borrowing costs. External pressures, particularly from oil prices and the rupee, have increased the cost of maintaining a prolonged pause. A sharp decline in oil and food prices or a material weakening in domestic demand could delay the move. However, in our view, another hold would risk leaving the RBI behind the curve and could require a larger tightening response later in FY27. The next policy decision is therefore likely to mark the beginning of a cautious and limited tightening cycle rather than a return to aggressive rate increases.

Further Readings

Monetary policy statement

Governor's statement

• Next policy meeting: Sep 21-22
• Current policy rate: 5.75%
• Our forecast: Hold
• Last decision: Hold (Aug 18-19)
• Rationale: BI to remain on hold as new governor steps in, concerns over central bank independence diminish

We expect Bank Indonesia to stand pat at its next MPC meeting on Sep 21-22, marking the third consecutive hold decision. The central bank would want to show policy continuity as new governor Destry Damayanti steps in, while concerns over BI's independence diminish as President Prabowo Subianto nominates seasoned central bankers for governor and deputy governors.

We think BI will avoid surprises in the short term, though it had a history of catching markets asleep under its previous governor Perry Warjiyo. So far, the central bank raised the key rate by 100bps cumulatively in May-Jun in a bid to support the rupiah after the US-Iran war led to pressure on EM currencies.

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Moreover, the rupiah seems to have stabilised, even regaining some ground as it returned to the USD/IDR 17,700-17,900 band, after briefly surpassing the USD/IDR 18,000 psychological threshold earlier in July. This would give the central bank some breathing space to focus on macroprudential measures, aimed at supporting the rupiah and boosting lending as a tool to support GDP growth.

On the other hand, CPI inflation has certainly taken a backseat in monetary policy decision-making, as it remains firmly anchored within the central bank's 2.5+/-1% target band. So far, the inflation outlook remains benign, as pressure on the currency continues to ease.

GDP growth

GDP growth slowed to 5.29% y/y in Q2 from 5.61% y/y in Q1 2026, which brought the H1 expansion to 5.45% y/y. Government spending continues to support GDP growth, though private consumption and investment remain the main growth drivers. BI has maintained its GDP growth forecast at 4.9-5.7%, which seems realistic at present.

On the other hand, the government spending contribution will gradually decline as it scales down its free lunch programme (MBG). So far, the government insists it will have no significant impact on GDP growth, though some marginal slowdown could be expected in H2, in our view.

Exchange rate stability

The rupiah has depreciated by about 7% against the USD since the beginning of the year, making it one of the worst-performing EM currencies globally. It regained some ground in August, as back in July the depreciation reached close to 8%.

As a result, so far BI's measures to stabilise the rupiah seem to have a containment effect, as the local currency has depreciated significantly since the beginning of the year and regained only a fraction of its losses. We should note that apart from the rate hikes, BI regularly carries out its so-called triple intervention, which includes purchases on the spot FX market, domestic non-deliverable forwards (DNDF) and buying government bonds on the secondary market. BI also increased coordination with the government, with the government also starting bond buybacks on the secondary market to boost FPI inflows.

The central bank also introduced a range of other measures aimed at stabilising the rupiah, such as reducing the FX purchase limit from USD 100,000 in the beginning of the year to USD 10,000 from Jul 1. In addition, it also raised the cap on banks' foreign funding portfolio to 40% from 35% previously, aiming to attract more FX inflows.

Concerns over the Fed's policy course have also diminished, with pressure on the rupiah now the main topic. Still, should the Fed tighten monetary policy, this will exert further pressure on the Indonesian rupiah, possibly prompting BI to follow suit.

Inflation environment

CPI inflation eased to 2.88% y/y in July from 3.34% y/y in June, remaining within BI's 2.5+/-1% target band. CPI inflation is mainly driven by food prices, which reflect both the rupiah's depreciation and second-round effects from the oil price spike following the US-Iran war. Core inflation remains close to the midpoint of the BI's target band at 2.76% y/y in July.

Looking forward, the outlook for August remains benign as the government keeps subsidised fuel prices flat, carrying the burden from the oil price spike. The central bank expressed confidence that CPI inflation will remain under control and within the target band in 2026.

As a result, we think CPI inflation has largely taken a backseat in Bank Indonesia's monetary policy meetings.

Conclusion

Looking forward, we expect BI to stand pat in September as pressure on the rupiah subsides, following the change in the central bank leadership. Bank Indonesia will focus on the rupiah's stability as CPI inflation remains anchored firmly within the central bank's 2.5+/-1% target band.

Further reading

Last MPC press release

Calendar of MPC meetings

• Next MPC meeting: September 24
• Current policy rate: 6.50%
• EmergingMarketWatch forecast: Hold

Two Monetary Policy Council (MPC) members took a dovish tone in the latest sitting, according to the minutes published last week. The board members, probably Governor Victoria Rodríguez and Deputy Governor Omar Mejía, surprised by saying the CB should hold the policy rate at 6.50% "on this occasion", suggesting they might eye earlier-than-expected monetary easing. However, they did not go as far as suggesting a rate cut should be considered in the short term and failed to provide a timeline for any further easing. Thus, we remain confident the MPC will hold its Monetary Policy Rate (MPR) as is throughout 2026 and through early 2027.

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The minutes show the board recognizing lingering pressure on service prices. We did not see enough discussion on what is driving this pressure, in our view, considering the analysis of whether this is a relative adjustment of prices or whether this is reflecting the inflationary effect of growing real wages (among other possible drivers) is crucial to determine how the CB should act. A member, possibly Deputy Governor Galia Borja, said this pressure is driven by higher costs, without clarifying their nature; another member, possibly Deputy Governor José Gabriel Cuadra, blamed this lingering pressure on "intrinsic persistence", again without giving any further clues about how policymakers should think of this pressure.

In any case, these two focuses of 1) potential easing ahead and, 2) worrying sticky service prices, show quite a division within the MPC, in our view. We believe this debate will be crucial in coming sittings to assess the next policy actions by the board. In any case, the minutes show a division that favors the less dovish side, for now, with Deputy Governor Jonathan Heath, the only hawk on the board, assuring three votes against any further monetary easing ahead.

On this, we warn Heath's term will conclude at the end of the year. We insist the board's credibility will be crucially affected by the appointment to be made by President Claudia Sheinbaum. We continue to expect Heath's seat to be assumed by someone with the right credentials, considering the MORENA regime has made an effort to show the CB's board as independent, even as it's named some loyalists to the board. We've assumed the president will appoint a CB general director to take Heath's seat, showing experience at the CB. However, we cannot dismiss the arrival of a political figure, such as FinMin Édgar Amador.

In any case, we expect the board to become even more dovish with the departure of Deputy Governor Heath, raising the chances of monetary easing in 2027, even if CPI inflation is in no clear path to converge to the CB's 3.00% inflationary target.

Besides inflation, the MPC did ponder a number of potential policy drivers, including the economy's weak pace, the currency's strong position, and the potential of monetary tightening by the Federal Reserve.

On the currency, we note some board members have noted that recent data suggest the currency's performance has had only a negligible impact on the pace of CPI inflation and, thus, should not drive monetary policy. Still, it might make sense for the CB to ponder actions that weaken the Mexican peso a bit, considering its impact on the exporting sector's competitiveness. Indeed, the exchange rate stands at USD/MXN 16.97 at the time of this writing.

We saw the board discuss the Federal Reserve outlook less than we expected when pondering the monetary policy decision. Only Heath highlighted the need not to widen the gap with the Fed further. We have assumed the board does not want to widen the gap much further, although the currency strength gives it some leeway. Perhaps some board members will give their take on the matter at the question and answers session following the inflation report presentation, scheduled for Wednesday [Correction, originally said Thursday]; however, we assume the board will continue to insist that the MPC looks at the Fed's decisions but does not target any policy rate gap when adjusting its policy rate.

Overall, we expect the board will hold the policy rate at 6.50% throughout the rest of the year and through early 2027, hoping for core inflation to slow further while it does so. We assume the dovish majority would like to clip the policy rate in 2027; however, it remains to be seen if they'll do so even if CPI inflation, as expected, shows no clear convergence towards the CB's 3.00% target. Indeed, late 2026 comments and year-end CPI inflation might increase the chances of easing next year. Currently, the market expects monetary policy stability through the rest of 2026 and through 2027, something that might not be recognizing how dovish the board is.

• Next MPC meeting: 21-22 September
• Current policy rate: 26.5%
• EmergingMarketWatch forecast: 26.5%

At its last meeting in July, the MPC maintained the monetary policy rate at 26.5% for the second consecutive meeting. This was in response to ongoing risks from exchange rate volatility and food and energy prices. A few days before the July MPC session, June's inflation print showed a minor drop to 15.91% y/y from 15.93% y/y in May. This followed three consecutive months of rising inflation stemming from pressures around the Middle East war. The most recent data from the statistics office shows inflation falling for the second straight month, reaching 15.4% y/y in July. The MPC will next meet on 21-22 September, where August inflation, food price trends, exchange rate stability and other domestic and external pressures will be major considerations. The CBN will need to determine whether the recent moderation represents a sustained disinflationary trend that can support lower borrowing costs without reigniting inflation. We believe the available data for now does not confidently support a rate cut.

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Specifically, accelerating food prices will limit the scope for the CBN to cut the monetary policy rate. Food inflation continued to climb for the sixth consecutive month in July, reaching a high 20.3% y/y from 17.5% y/y in June. The statistics office attributed the increase to higher prices for commodities including crayfish, fresh pepper, onions, carrots, rice, tomatoes, garri, plantain, beef and eggs. Food inflation continues to reflect supply-side pressures from insecurity and seasonal constraints. In addition to elevated food inflation, there are persisting geopolitical risks as well as potential election-related spending ahead of 2027 that could renew price pressures. We believe the current disinflation is not yet broad-based or durable enough to justify an immediate cut.

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According to Nigerian analysts, recent reforms to the CBN's open market operations (OMO) and discount window frameworks give the CBN greater flexibility to manage system liquidity without adjusting the policy rate. These reforms include broader access for individuals and non-bank institutions to OMO auctions (via banks), the lifting of certain restrictions on the standing lending facility, and the restoration of tenored repo operations across tenors of four to 90 days. The CBN's active liquidity management was already evident before these reforms were announced in August. In July alone, the apex bank mopped up approximately NGN 7.2tn via OMO auctions.

At the same time, improved exchange-rate stability and FX market depth will form an important part of the MPC's assessment in September. The naira strengthened notably in August, trading at USD/NGN 1,343 in the Nigerian Foreign Exchange Market (NFEM) on Aug 18 which is its strongest level since April 2026. Spreads between official and parallel rates remain under 5% and interbank turnover has surged on several sessions. These gains have been supported by the recent discount-window reforms as well as stronger foreign portfolio inflows. Overall, our base case is a 26.5% hold in September, giving the CBN more time to assess August inflation and whether food-price pressures begin to moderate. A rate cut becomes more likely if food inflation and monthly headline inflation ease materially while FX stability is maintained.

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Monetary Policy Committee Statement

Monetary Policy Committee Meeting Schedule

Next policy meeting: September 14, 2026

• Current policy rate: 11.50%
• Last decision: Hold (July 27, 2026)
• Our forecast: Hold
• Rationale: Inflation outlook improves while external account seen manageable

The State Bank of Pakistan (SBP) kept the policy rate unchanged at 11.5% in its first meeting of FY27, in line with market expectations. The decision was unanimous compared with one member of the monetary policy committee voting for a hike in the June meeting. This suggests that the panel turned more neutral as the macroeconomic outlook improved. Inflation appears to have peaked in May, inflation expectations have eased, external pressures remain modest, and economic activity is recovering after slowing in April and May. While inflation remains elevated, the SBP considered the current, slightly restrictive monetary policy stance as appropriate to guide inflation towards its 5%-7% target range. It expected the goal to be achieved by June 2027.

The SBP appears to have looked through the recent escalation of hostilities in the Middle East and the subsequent rise in global oil prices, perhaps expecting the latest flare-up to be temporary. Its favourable inflation outlook also supports this view. This contrasts with its 100bps rate hike in April, when the central bank raised its benchmark rate for the first time in nearly three years in response to the conflict.

Inflation environment

The SBP turned slightly more comfortable with the inflation trajectory than before. It no longer sees inflation remaining in double digits over the next few months, as stated in the previous two monetary policy statements. CPI inflation eased to 11.1% y/y in June from a nearly two-year high of 11.7%, mainly due to a softer increase in fuel and electricity prices. Still, inflation stayed above the SBP's 5%-7% target range for the fourth consecutive month and is likely to remain above it in the near term. Core inflation also slowed but remained elevated at 8.4%, down from 8.7% in May. Consumer and business inflation expectations declined for a second straight month in June, suggesting expectations remain broadly anchored. Inflation may moderate further in July as the impact of last year's gas tariff hike drops out of the base and jewellery prices fall, though higher energy, food, and transport services prices are likely to keep upward pressure.

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External sector

The SBP maintained a fairly optimistic view on the external account. It expected the current account deficit to stay manageable at 0%-1% of GDP in FY27, even though it is likely to widen from just USD 139mn, or 0.03% of GDP, in FY26. The outlook is supported by strong workers' remittances, which are projected to rise 5.1% y/y to a fresh record of USD 44bn. This suggests the central bank expects remittance inflows to remain resilient despite tensions in the Middle East. Exports are also expected to recover, helped by a rebound in rice shipments after a weak FY26, when stronger global competition weighed on the sector. Total exports fell 4.6% y/y in FY26. However, imports are likely to rise further after increasing 9% y/y in FY26, as stronger economic activity boosts demand for imported goods. Higher-for-longer global energy prices remain another key risk.

The SBP expected foreign exchange reserves to continue rising, targeting to lift reserves to an all-time high of USD 20.2bn by end-December 2026. Reserves stood at USD 17.3bn as of July 17, down from USD 18.5bn two weeks earlier due to large debt repayments. Continued forex purchases from the interbank market, fresh loan inflows, and bilateral debt rollovers are expected to support reserve accumulation.

Meanwhile, external debt repayment pressure is also expected to ease this fiscal year. Gross repayments are projected at USD 21.5bn, down from USD 26.5bn in FY26. Of the USD 18bn in principal repayments, around USD 10bn-11bn is expected to be rolled over or refinanced, leaving net principal repayments of about USD 7.5bn. Interest payments are expected to fall to USD 3.5bn from USD 4bn in FY26. Overall, debt-related outflows are estimated at around USD 11bn in FY27.

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GDP growth

The SBP expressed confidence that Pakistan's economy will strengthen further in FY27, supported by improved farm output, budgetary incentives, continuation of import tariff rationalisation, and increase in private sector credit. GDP growth is projected in the range of 3.5%-4.5%, up from an estimated 3.7% in FY26. It noted that economic activity picked up in June after recording some slowdown in April and May on account of the Middle East conflict, surge in global energy prices, and austerity measures taken by the government. However, risks emanating from volatile global commodity prices amidst re-escalation of tensions in the Middle East and uncertain weather conditions, including from the evolving El Niño effects, may weigh on the growth prospects, the central bank added.

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Conclusion

We expect the SBP to remain on hold for an extended period as the external sector remains stable and supply-driven inflation eases, with the normalization of base effects providing additional support. That said, the central bank reiterated its commitment to price stability and said it will continue to closely monitor incoming data and evolving developments. This signals that it stands ready to tighten policy if price pressures emerge. A sharp rise in global oil prices, unexpected increases in administered energy prices, or adverse climate conditions could alter its inflation outlook and rate path.

Further Readings

Previous policy rate decisions

Minutes of MPC meetings

Latest IMF staff report

• Next monetary policy meeting: Aug 27
• Current policy rate: 4.75%
• EmergingMarketWatch forecast: Hike by 25bps or hold
• Rationale: CPI for July; GDP for Q2; consensus poll; peso weakness

We think that a hike by 25bps and a hold decision are both possible at the next meeting of the BSP's Monetary Board (MB) on Aug 27. In June, the MB decided to increase the BSP's Target Reverse Repurchase (RRP) Rate by 25bps to 4.75%. The decision was in line with expectations. It was the second consecutive rate hike.

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Meanwhile, a 25bp policy rate hike on Aug 27 was expected by 19 out of 24 analysts surveyed by the BusinessWorld last week. Five analysts predicted a hold decision.

In our view, the main argument in favour of continued tightening is CPI inflation that remained significantly above the 3±1% tolerance band in July. The weakness of the peso against the US dollar is another argument supporting the expectation of a rate hike. The main argument in favour of a hold decision is the GDP data for Q2, which were a significant negative surprise.

Earlier this month, BSP Governor Eli Remolona Jr. said that there is less pressure to raise the policy rate, given the second-quarter GDP data. A few days later, he told an economic forum that the weaker growth they are seeing means the central bank can be less aggressive in trying to curb inflation. He also said that a more convincing downward trend for inflation is necessary before they can relax.

Inflation

CPI inflation slowed to 6.2% y/y in July from 6.4% y/y in June. The y/y CPI growth has been decelerating for three consecutive months. The CPI rose by 5.0% y/y in Jan-Jul. Annual core inflation was 4.2% in July, decelerating from 4.4% in June. The seasonally adjusted CPI was flat m/m in both June and July.

The CPI inflation in July was within BSP's month-ahead forecast range of 5.6-6.6% y/y.

The producer price index rose by 3.0% y/y in June, decelerating from 3.1% y/y in May.

The World Bank forecasts average inflation of 5.8% in the Philippines in 2026. Inflation is predicted to stay above the 3±1% tolerance band through year-end. Average inflation is projected at 3.9% in 2027.

Economic growth

The GDP increased by 2.3% y/y in Q2, decelerating from 2.8% y/y growth in Q1. The latest reading was below the 2.8% forecast in a Reuters poll, the 2.9% estimate in a Bloomberg poll, as well as the 2.8% median forecast of a BusinessWorld poll. It is also the weakest growth since Q1 2021, when GDP fell by 3.8% y/y. In seasonally adjusted terms, the GDP increased by 0.6% q/q in Q2, after rising by 0.9% q/q in Q1. The GDP expanded by 2.6% y/y in H1.

The government targets GDP growth of 3.5-4.5% for 2026. Given the performance in H1, the Philippine economy must expand by at least 4.4% y/y in H2 in order to reach that range. According to Economic Planning Secretary Arsenio Balisacan, the target can be reached provided the administration acts with urgency, discipline, and close coordination.

The World Bank projects that the country's GDP will rise by 3.7% in 2026 and 5.2% in 2027, according to the latest edition of the Philippines Economic Update (PEU) released in early August. In the December edition, the two growth rates were seen at 5.3% and 5.4%, respectively.

LFS, lending

The unemployment rate increased to 4.9% in June, up from 4.8% in May and 3.7% in Jun 2025, according to the results of the latest labour force survey (LFS). In the y/y comparison, the number of unemployed rose by 32.8% to 2.59mn in June. The number of employed climbed 0.4% y/y to 50.66mn. The labour force hence increased by 1.6% y/y to 53.25mn.

Outstanding loans of universal and commercial banks, net of reverse repurchase (RRP) placements with the BSP, rose by 9.8% y/y at end-June, decelerating from 12.1% y/y growth at end-May, the BSP said.

Banks expect to keep their credit standards for enterprises and households steady in Q3 under the modal method, according to the results of the Q2 Senior Bank Loan Officers' Survey (SLOS) conducted by the BSP. The diffusion index method shows expected net tightening. The banks expect unchanged loan demand under the modal method, whereas the diffusion index method shows expected net increase in loan demand.

Exchange rate

The peso is trading at USD/PHP 61.655 at the time of writing, which compares with USD/PHP 60.595 on Jun 18, the date of the latest MB meeting. The exchange rate was USD/PHP 58.856 on Dec 31, 2025.

Further reading

Press release after Jun 18 monetary policy action

Schedule of monetary policy meetings

Highlights of MB meetings on monetary policy

Monetary Policy Report

• Next MPC meeting: Sep 8-9, 2026
• Current policy rate: 3.75%
• EmergingMarketWatch forecast: 3.75%

Rationale: NBP and Monetary Policy Council head Adam Glapinski went into the summer in a surprisingly dovish mood and set the stage for speculation about whether the potential motion he would submit for the Sep 8-9 sitting to cut rates would muster support only to see the US-Iran conflict escalate and fuel prices to shoot up. Though fuel is indeed an exogenous factor, CPI inflation was lifted to 3.0% y/y in July from 2.5% in June and will accelerate further in August. That will help stoke inflation expectations and raise the risk of second-round effects, both of which will make the council cautious in September and potentially in the following months as well.

But it is an open question of how long fuel prices will remain high. The government seems nearly sure to return the VAT on fuel to 8% from 23% for the final two weeks of August. That might lower the August CPI reading by some 0.3pp or so, though the final scale depends on where prices actually go. If there were to be some sort of lasting de-escalation in the Middle East, then that could help bring down oil prices and remove the main threat to headline inflation. Glapinski is likely to see the inflation outlook as benign as he did in late June and early July, and that might mean he quickly becomes dovish again should the fuel question be resolved.

The problem is likely that the situation in the Middle East seems unlikely to be resolved one way or another for some time. US President Donald Trump will have the incentive of having lower fuel prices for the early November midterm elections, but Iran has the incentive of keeping them as high as possible while being able to survive. That probably means the on-again/off-again conflict will continue in the coming months, and the threat of higher fuel prices and second-round effects will keep the MPC cautious, potentially delaying any rate move until 2027.

MPC's post-sitting statements

Latest council minutes

Latest NBP inflation report (July 2026)

Most recent MPC voting results

Archived video of all MPC press conferences

• Next MPC meeting: Sep 10, 2026
• Current policy rate: 37.0%
• EmergingMarketWatch forecast: Hold
• Rationale: Inflation still warrants tight policy, while early repo return raises questions over CBT's policy direction

We expect the CBT to keep the policy rate unchanged at 37.0% at the forthcoming MPC meeting. The inflation picture, in our view, leaves little reason to do otherwise. We expect CPI inflation at 1.90% m/m in August, which would bring annual inflation only slightly lower to around 31.6% y/y. The decline in the annual rate would therefore flatter the underlying picture somewhat. More importantly, a print around our forecast would exceed July's 1.78% m/m and suggest little further improvement in headline inflation momentum this month, we underline.

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The broader expectations picture points in the same direction. The CBT recently raised its year-end inflation forecast to 28%, while market participants now expect 29.5% y/y and EMW's model produces a broadly similar result. All of this sits uncomfortably above the CBT's 24% interim target. If the bank remains committed to that target, we think the case is still for tight monetary conditions. Otherwise, repeated upward forecast revisions alongside an earlier relaxation in financial conditions would inevitably raise questions over how much weight the market should attach to the target itself, we assess.

Gold is another risk worth watching, we note. The negative wealth effect has been one factor helping the slowdown in domestic demand at the beginning of the year, but the latest rise in gold prices could partly unwind that effect given Turkish households' sizeable exposure to gold, we assess. We would particularly watch whether stronger household wealth starts feeding back into big-ticket spending, particularly automobile and housing demand. That would make the demand side of the disinflation story somewhat less comfortable just as the CBT has started normalising liquidity conditions, we underline.

This is why the CBT's Aug 24 decision caught our attention. The bank resumed one-week repo auctions as part of its TRY liquidity management framework, reversing the suspension introduced on Mar 1. Since the beginning of the Middle East conflict, the CBT had instead funded the market through the overnight lending window. Moving back to one-week repos therefore brings the effective funding cost back towards the 37.0% policy rate.

We had expected such a move eventually but not this early. The next MPC meeting is only around two weeks away. Waiting would have given the CBT the August CPI print and, perhaps more importantly, another couple of weeks to judge the course of the Middle East conflict. The decision therefore looks somewhat front-loaded.

One explanation for that move is straightforward. The CBT may simply judge that geopolitical risks have receded enough to unwind the exceptional liquidity tightening introduced after the conflict began. But the timing also makes us wonder whether growing complaints from the real sector, or broader political pressure for some relief in financial conditions, are beginning to carry more weight. We cannot establish that from one operational decision. Still, we would not dismiss the possibility.

This is what we will watch at the forthcoming MPC meeting. A 37.0% hold would tell us relatively little on its own. The statement around it matters much more now. If the CBT portrays the return to one-week repos as a technical normalisation after an exceptional period, the broader policy stance can remain intact, we assess. If the language also starts leaning towards easier financial conditions despite sticky m/m inflation, a 28% year-end forecast and a 24% interim target, the Aug 24 move may prove to have been the first sign of a broader policy shift, we flag.

Summary of July rate-setting meeting

MPC rate decision in July

Quarterly Inflation Report for Q3 (Only overview available in English)

Monetary policy strategy for 2026

• Next MPC meeting: Sep 8
• Current policy rate: 4.50%
• EmergingMarketWatch forecast: 4.50%

Summary

We expect the BCCh's Monetary Policy Council to keep the MPR at 4.50% on Sep 8, and we believe it will remain on hold throughout the remainder of 2026. The July CPI release that saw inflation come down to 3.5% y/y weakened the case for a hike, while persistently high services inflation and renewed external risks continue to make a cut difficult to justify. With medium-term inflation expectations anchored at the 3.0% monetary policy target and activity weaker than expected, the balance of risks remains broadly neutral.

Minutes from the BCCh's last meeting reinforce this view. Although the post-meeting statement adopted a more cautious tone due to renewed conflict in the Middle East and higher oil prices, minutes showed that the MPC did not actively consider a hike. All members agreed that maintaining the MPR was the only plausible option because higher external inflation risks were offset by weaker domestic activity and investment. The current guidance remains meeting-by-meeting, with no bias toward either a hike or a cut.

The market consensus is similarly strong. All but one of the 53 analysts surveyed by the BCCh in August expect a hold in September, and all but two expect the MPR to remain at 4.50% for at least the next two meetings. Some 81% forecast that the rate will remain unchanged through year-end.

Inflation moving closer to target

Headline inflation eased to 3.5% y/y in July from 4.3% in June, slightly below expectations. Much of the decline reflected lower energy inflation and the fading contribution from the large electricity tariff adjustments implemented in 2025. The result indicates that the June acceleration was not the start of a broad inflationary trend and reduces the probability of a rate hike.

Core inflation also remains broadly consistent with a gradual return to target. The BCCh's preferred core measure was 3.2% y/y in July and remained within a narrow 3.2%-3.4% range for ten months. Its annualized increase over the last three months was 3.3%, suggesting that underlying inflation has remained relatively stable despite considerable volatility in energy prices.

Still, the inflation breakdown does not support a dovish shift. Services inflation stood at 4.3% y/y, with dining, healthcare and education prices rising by more than 5.0%. Food inflation remained at 4.0%, while fruit and vegetable inflation accelerated following a harsh July storm, potentially creating additional short-term pressure.

Inflation expectations tell a similar story. Expected inflation one year ahead increased slightly to 3.1% in the latest consensus poll, while expected core inflation held at 3.2%. However, expectations at longer horizons remain anchored at the 3.0% target. This combination gives the MPC room to look through temporary food and energy shocks, but not enough evidence to convincingly support a cut.

Weak activity offsets inflation risks

The consensus GDP growth forecast for 2026 remained at 1.3% in August after substantial downward revisions during the previous four months. There was a positive activity surprise in June, but it followed several readings that were weaker than expected, and was insufficient to change the annual outlook.

The slowdown has also spread beyond the natural resource sectors that initially drove the weakness of activity. The BCCh mentioned that realized investment was weaker than projected in Q2, particularly in energy and real estate, while consumption lost momentum amid deteriorating confidence, weaker real income growth and a soft labor market. The July storm will probably weigh temporarily on activity, although reconstruction efforts should allow part of that decline to be recovered later.

Investment fundamentals remain favorable for 2027 onward, supported by a large project pipeline and the recently approved omnibus bill. However, the BCCh has emphasized that planned projects have not yet translated into stronger realized investment. For the September decision, current demand weakness matters more than the prospect of a recovery next year.

This weak domestic environment reduces the likelihood that temporary increases in food or energy prices will produce broad second-round effects. It also makes a rate hike unnecessarily restrictive unless there is a more persistent external shock or evidence that inflation expectations are becoming unanchored.

External risks still argue for caution

The main upside inflation risk remains the conflict in the Middle East. Oil prices had returned to around USD 100 per barrel by the July meeting, while renewed US tariffs and higher global interest rates added uncertainty. A sustained increase in oil prices could again raise local fuel prices, weaken the peso and delay inflation convergence.

However, pass-through from fuel prices has remained consistent with historical patterns so far, and the earlier shock is partially reversing. The MPC can therefore continue to treat external price pressure as a risk scenario rather than the baseline.

A hike would become more plausible if oil prices rise further, the CLP depreciates sharply, or the resulting pass-through begins to affect services and inflation expectations. Conversely, a cut would require clearer evidence that services inflation is easing, headline inflation is converging sustainably toward 3.0%, and external energy risks have subsided.

Under the current baseline, neither condition is likely to be met by Sep 8. We expect the MPR to remain at 4.50% through year-end, with a 25bps cut toward 4.25% becoming more plausible during H1 2027 if inflation convergence continues and domestic activity remains soft.

• Next board meeting: Sep 30, 2026
• Current policy rate: 12.00%
• EmergingMarketWatch forecast: 50bps hike

BanRep is likely to raise its policy rate at its Sep 30 meeting. July CPI was benign on the surface, but underlying pressures still point to sticky, rising inflation, with the central bank expected to respond after the 12.0% rate was left unchanged on Jul 31. In July 2026, CPI rose 0.17% m/m, 4.94% year-to-date, and 6.03% y/y, down from 6.14% in June.

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Four categories contributed 3.1pps to the annual rate: food and non-alcoholic beverages, housing and utilities, transportation, and restaurants and hotels. Together, they make up 70% of the basket. Minimum wage pass-through continues to lift restaurant prices and indexed service fees, while actual and imputed rents contributed nearly 1.1pps, underscoring inflation inertia. Legal indexation of existing leases and pressure from new rents continue to slow CPI convergence. Furthermore, COP strength since May has helped durable goods inflation, but not enough to turn the overall trend lower. We thus expect inflation to rebound in September, which would reinforce the case for a Sep 30 rate hike.

Politics may also matter. At the July 31 meeting, one member who had previously aligned with Governor Villar's bloc (Mauricio Villamizar, Bibiana Taboada) shifted to support the dovish bloc's call to keep rates unchanged at 12% (pushed by ex-Finance Minister Germán Ávila, Laura Moisá and César Giraldo), securing the majority instead of joining the hawkish push for a 50bp hike. It remains unclear whether that vote will persist, how incoming Finance Minister Miguel Gómez will position himself, or whether the administration wants to send a hawkish signal.

Our forecast, for now, is a 50bps hike. This is down from last week's 100bps forecast, which reflected the need to compensate for July's decision to leave rates unchanged and the lack of an August meeting. This downward revision is partly driven by the government's recent stance. Comments on Aug 11, especially from FinMin Gómez, on declaring an economic emergency without raising taxes and deferring households' tax-filing schedule to support the earthquake victims, suggest the administration is also weighing the liquidity pressures currently facing households and businesses. That makes it less clear that the minister would be fully aligned with the central bank hawks on frontloading. Even though Villar and Villamizar have argued that early and forceful adjustments are the best way to break the inflation trend and avoid a sharper correction later, this hawkish stance would imply maintaining a wide interest-rate differential with the US Fed. This would likely continue to fuel a carry-trade position in Colombian assets, hurting exporters' revenue as the COP strengthens.

• Current policy rate: 3.50%
• Next monetary policy meeting: Sep 1, 2026
• Expected decision: Hold, 25bps cut equally possible

Bank of Israel (BoI) governor Amir Yaron said on Aug 18 that the Sep 1 decision would be live, indicating that the MPC would have to choose between a 25bps rate cut and an on-hold decision. He said that the rate-setters would consider the developments on the labour market and inflation as well as geopolitical uncertainties and fiscal risks, warning that they would have to manage huge uncertainties. The latest releases of inflation in July and GDP in Q2 were rather supportive for a rate cut, we believe. There are no further major data releases by the time of the meeting so what might weigh on the decision in one direction or another are mainly the geopolitical developments, which still bear high risks. The MPC cut the policy rate by another 25bps to 3.50% on Jul 6 with the latest research department forecast suggesting two more cuts in the next year so that the policy rate would reach 3.50% in Q2 2027. Yaron repeated after the decision that the monetary easing might be faster and more expansive if inflation expectations continue to decline towards the lower end of the 1-3% target range. He added though that in case of deterioration, the MPC would change the course. Yaron did not comment if those assumptions are still valid but not much has changed since then and we still think that two more rate cuts by Jun 2027 are possible but the timing is uncertain.

Data Download

CPI inflation eased further to 1.5% y/y in July from 1.6% y/y in June and 1.9% y/y in Mar-May with a large majority of its main components posting a disinflationary impact. Inflation even remained below 1% in June-Jul if excluding the heavyweight-housing component. However, Yaron mentioned that expectations are for inflation to increase towards 2.0% in the coming months, which is the centre of the 1-3% target range. In the latest forecast from early July, the research department cut the inflation forecast to 1.8% y/y in Q4 2026 with the factors that can affect inflation in either direction being the geopolitical developments and their effects on economic activity and on energy prices, the risk premium and the exchange rate, the development of demand alongside supply constraints, and fiscal developments. Yaron warned that if the government eventually adds NIS 25bn more to the defence budget, in line with the demands of the defence establishment, this can boost inflation by 0.3pps in the next year.

GDP posted a strong recovery in Q2 jumping 15.4% in saar terms (seasonally-adjusted annualised rate), much higher than expected. Concerns that growth was supported by the activity of multinational companies, which was outside the country's borders, should have eased as they had a significantly lower effect in Q2, in line with BoI expectations that the growth base would expand with the release of reservists that eases supply constraints. Yaron assessed that GDP was very strong in Q2 but warned there were caveats addressing the above issue. The output was still below the pre-war potential but the gap was at just 1% from its pre-war long-term trend, the governor also stated.

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: 16.75%
• Next monetary policy meeting: Sep 4
• Expected decision: 25bp cut
  

We think there is scope for the NBK to cut the base rate again in September. We remind that this year's monetary easing cycle started in June, when the rate was cut by 100bps. A 25bp cut was implemented last month. Both moves came despite inflationary tendencies acknowledged by the NBK. The CPI rate edged down to 10.2% y/y in July, while households' inflation expectations eased to 12.1% (from 13.4%). Both factors seem likely to encourage further monetary easing, in our view.

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We also note that a recent government meeting indicated the authorities intend to refrain from major tariff hikes for the rest of the year. Food prices are also subject to constant monitoring and the government is developing measures to keep food inflation stable. In addition, exchange rate dynamics and official plans to maintain prudent fiscal spending are also likely to support the easing of NBK's stance. Externally, inflationary pressures persist, but they do not seem to have had a decisive impact in recent rate-setting meetings.

All in all, we think another moderate rate cut is possible in September. In a recent statement, NBK governor Suleimenov said the base rate could drop to 16% if inflation falls to around 9-9.5% by the end of 2026. He insisted there is no predetermined rate trajectory, but the 16% benchmark could be an actual target, in our view. If so, the NBK could deliver careful 25bp cuts throughout the rest of the year, monitoring inflation dynamics and reversing the cycle in case of severe shocks.

• Next policy meeting: August 27
• Current policy stance: 2.75%
• Last decision: Jul 16 (25bps hike)
• Forecast: Hawkish hold
• Rationale: Headline inflation eased in July, the USD/KRW FX rate fell and stabilised, BOK likely to raise guidance first before hiking again

The Bank of Korea (BOK) is more likely than not to leave its policy rate unchanged at 2.75% on August 27, in our view, but we emphasise that this is very close to a 50/50 call. The July 16 increase was unanimous and the first hike in three and a half years. The BOK justified it with stronger export- and investment-led growth, inflation likely to remain above target for some time, and persistent financial-stability risks. Governor Shin Hyun-song then hinted that an August hike is a likely possibility, but also compared monetary policy to a large tanker rather than a bicycle. We read the latter as a warning against assuming that tightening must occur at every meeting.

The analyst debate is correspondingly divided. Citi expects another 25bps hike in August after the Q2 growth surprise. Woori Finance Research Institute instead forecasts a "hawkish hold", potentially with one or two hike dissents, while NH Investment & Securities and Meritz have also leaned toward waiting until October. It should be noted that Woori's forecast came out six days ago, while Citi projected a hike following hawkish remarks by BOK Deputy Governor Yoo Sang-dae. In our view, the data still support a tightening cycle, but July's CPI and FX developments have raised the bar for a second consecutive move.

Headline inflation has eased, but underlying pressure remains

The strongest argument for waiting is July's CPI data. Headline inflation slowed to 2.8% y/y from 3.2% in June, helped by weaker petroleum inflation and more stable agricultural prices. This remains above the BOK's 2% target, but it reduces the urgency seen before July. However, underlying core inflation, as well as the near-term outlook, are less reassuring. CPI excluding food and energy rose 2.6% y/y in July, accelerating from June's level, while services prices also increased 2.6%, and personal services were up 3.5%.

In addition, the latest data on agricultural prices indicates that they have been significantly impacted by the heatwave in South Korea, while oil prices are also above the government's H2 assumption. This makes it likely that headline inflation will accelerate in August, in our view. However, based on the statements following the July decision, the BOK is already expecting some acceleration in inflation in August, due to base effects, while core inflation is also expected to remain sticky. Ultimately, we think the central bank is likely to regard an acceleration in inflation in August as most likely caused by one-off effects and thus this will not factor much in its policy stance.

We note that Governor Shin stressed at the July press conference that the BOK was increasingly focused on demand-side inflation and would assess Q2 GDP/GDI, July inflation, the exchange rate, housing and household credit before the next decision. In our view this makes it more likely that the central bank will opt to observe at least one more meeting's worth of policy transmission from the July hike before opting for a new hike.

Growth has surprised sharply to the upside

Based on GDP data alone, the case for an immediate hike seems convincing. According to the advance estimate, in Q2 real GDP grew 0.6% q/q and 3.7% y/y. The GDP result was well above the BOK's earlier expectation of roughly 0.2% q/q. Shin had already said on July 16 that the May forecast of 2.6% growth for 2026 was too low and that the August projection would be raised substantially. The external sector has since stayed exceptionally strong. July exports reached USD 98.89bn, the second-highest monthly total on record after June's USD 102.2bn and exports to China remained above USD 20bn for a second month, while ASEAN and EU shipments set records. The BOK has also emphasised that unusually large semiconductor-driven income gains are feeding through to investment and consumption. That matters for policy because the recovery increasingly looks capable of generating domestic demand and core-price pressure. The latest labour market data also showed that unemployment fell in July, albeit at a modest pace, while the total number of employed fell month-on-month.

A stronger won gives the BOK room to wait

FX developments have become less pressing. The USD/KRW rate stood near 1,415.7 on August 12 after falling sharply during July, and Woori expects roughly 1,420 at end-August. The won remains weak by longer-run standards, but the move is materially less inflationary than the levels prevailing before the July hike. Woori attributes the recent strengthening partly to the BOK's hawkish stance, export-sector dollar selling and other foreign-currency inflows. This definitely reduces one reason for the BOK to opt for back-to-back hikes, in our view. Nevertheless, lingering financial-stability risks prevent the pause from becoming dovish. The BOK continues to identify housing prices, household borrowing and asset-market conditions as variables requiring close monitoring. These factors could still swing what we see as a finely balanced August decision toward a hike if the data deteriorate before the meeting.

Conclusion

Our baseline is a hold at 2.75% on August 27, accompanied by distinctly hawkish communication and probably at least one (dissenting) vote for a 25bps increase. Although growth data continue to outperform strongly, we think softer headline inflation and the stronger won provide a credible reason to assess July's hike rather than tighten back-to-back. There is also the issue of staying consistent with policy signaling. The six-month policy rate projected by BOK's dot plot remains at 3.0% (unchanged from May), which gives room for only one more hike until the end of 2026. We think the BOK is more likely to revise its forward guidance first, before hiking, in order to give itself more room to maneuver. We expect the BOK to raise its 2026 growth forecast materially, keep the policy path pointed upward and signal another 25bps hike for October unless inflation or activity weakens sharply.

Useful Links

Monetary Policy Decisions

Minutes

Monetary Policy Board composition

Open Market Operations

• Next policy meeting: Sep 3, 2026
• Current policy rate: 2.75%
• Our forecast: Hold
• Last decision: Hold (July 9, 2026)
• Rationale: BNM could be forced to tighten quicker than expected if Q3's GDP growth remains upbeat

We think that Bank Negara Malaysia (BNM) might be forced to raise rates earlier than expected as the Malaysian economy has been performing stronger-than-expected in H1, with GDP growth rising by 5.8% y/y in Q2 compared to an estimated 5.2% y/y increase. Until the release of the Q2 GDP figures, we anticipated that the BNM would not make any changes to the OPR in the remainder of 2026, however, upside risks have increased that GDP could rise by more than 5% in 2026, creating a risk of an overheating economy.

Data Download

GDP is widely expected to slow down in H2 after rising by 5.6% y/y in H1 largely on the back of a high base effect. However, we do not rule out that Q3's GDP figures will remain buoyant largely thanks to the AI investment upcycle. Thus, we think that Q3's GDP figures that will be released on Oct 16 could have a tangible impact on BNM's November rate decision. At the same time, we don't think that the BNM will have enough data to determine whether growth will overshoot its target in 2026 by the time of its Sep 3 meeting.

At the last July 9 meeting, BNM reaffirmed that its growth projection for 2026 remains firmly within the forecast range of 4-5%, subject to both upside and downside risks such as prolonged conflict in the Middle East, stronger demand for E&E goods, or higher tourism activity. In addition, BNM gave no signs that it plans any changes to its monetary policy stance after it reaffirmed that the monetary policy stance remains "appropriate and consistent with the outlook of continued price stability and sustainable economic growth."

In terms of inflation, BNM also said that the impact of higher global commodity prices on inflation is expected to remain "contained," which was confirmed by actual data given that CPI inflation decelerated to 1.9% y/y in June from 2.0% y/y in May. The government's generous fuel subsidy programme remains the key measure keeping a lid on headline inflation, which enables the BNM to maintain an unchanged monetary policy stance for longer. However, PPI inflation has shown signs of inflation build-up as it accelerated for the fourth straight month to 9.2% y/y in June. In addition, credit growth has recently picked up to 6.4% y/y in June, the highest in the post-2022 period, in line with the solid economic expansion.

Overall, we still think that the BNM remains in no rush to tighten policy considering the stable CPI inflation situation. However, the stronger-than-expected GDP growth raises the risk of the economy overheating. The high PPI inflation and the accelerating credit growth also create the conditions for headline inflation to quicken down the line. This will likely cause the BNM to bring forward its rate hike to November, instead of early 2027 as we previously expected, especially if economic growth in Q3 once again surprises on the upside.

Further Readings

Previous OPR decisions

• Next MPC meeting: Oct 8, 2026
• Current policy rate: 6.50%
• EmergingMarketWatch forecast: Hold

Rationale: Romania's central bank is very likely to keep the key policy rate at 6.50% at the Oct 8 MPC meeting and wait at least until early 2027 before considering a cut, in our view. This was also suggested by NBR Governor Mugur Isarescu during the presentation of the latest Inflation Report on Aug 13. He stressed high uncertainties regarding the inflation outlook and noted that a key rate cut could be considered when inflation drops below the monetary policy rate. Since the Inflation Report revised the end-year forecast upward to 6.1% from 5.5%, we assume that rate cuts will be discussed in early 2027.

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Inflation remained persistently high, driven by rising fuel prices following the Iran conflict and a renewed spike in domestic uncertainty after the political crisis. The NBR revised its end-year inflation forecast upward mainly due to the effects of the severe drought on electricity prices, stronger CORE2 inflation and a bigger contribution from administered prices. As for rate hikes, such moves were previously ruled out by a central bank representative, considering weak economic growth and expectations of inflation moderation.

The central bank kept the policy rate unchanged at the Aug 10 MPC meeting, reflecting a sharp deterioration in the short-term inflation outlook following the escalation of the Middle East conflict and the resulting surge in global energy prices. According to the NBR, the balance of risks has shifted decisively upward, with inflation remaining above 10% through June, levels higher than previously anticipated due to fuels and elevated oil and gas prices.

The NBR expects inflation to sharply moderate in Q3 and fluctuate throughout the remainder of the year, on a higher path than previously anticipated. The central bank sees inflation entering the upper band of the target interval toward the end of 2027. Market expectations have adjusted once more, with most economists no longer anticipating cuts in 2026.

• Current policy rate: 14.25%
• Next monetary policy committee meeting: Jul 24
• Expected decision:hold

The market is now pricing Friday's rate decision as a pause, although there are still views in favour of both a rate hike and a rate cut. These differences reflect not only the assessment of current data, but also different expectations for future trends. While some key macroeconomic indicators, such as budget execution and slower economic growth, suggest there is room for a rate cut, others, especially inflation, inflation expectations and lending dynamics, argue for at least maintaining the current level of monetary tightening. At the same time, the outlook remains uncertain. Budget performance depends on global oil prices, while developments in the war in Ukraine also affect inflation through fuel price shocks. We expect the CBR to keep the key rate unchanged at 14.25% at this meeting, although we do not rule out a 25bp cut to 14.00%.

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Inflation accelerated sharply to 10.6% (SAAR) in June from 2.5% and 2.0% in April and May, respectively. The three-month average reached 5.0% (SAAR). However, we believe almost all of this acceleration was caused by the fuel factor. Therefore, the CBR's main task is to understand how significant and persistent the secondary effects of the fuel crisis will be. It is unlikely to have enough information to make this assessment before Friday's meeting. For example, weekly inflation data for July still do not confirm a quick return to lower price growth. At the same time, we believe the CBR does not yet see broad-based secondary effects on inflation.

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Expectations are deteriorating on both the demand and supply sides. The BCI fell sharply to -3.6, reflecting a significant weakening in business sentiment. At the same time, inflation expectations of businesses increased to 20.2%, the highest level since January, while household inflation expectations rose sharply to 14.7% in July, the highest level since December 2021. However, it is still unclear whether this deterioration will become persistent because the surveys were conducted during the peak of the gasoline crisis. This is another argument in favour of waiting before changing the policy rate.

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The budget position is improving. June recorded a surplus and solid growth in non-oil&gas revenues. However, the medium-term outlook of the FinMin suggests that lower baseline oil prices will lead to a primary budget deficit this year and in the following years. At the same time, future government spending cannot be forecast with confidence because it depends on developments in the war in Ukraine. Another area of uncertainty is FinMin's suspension of OFZ auctions. We recall that the auctions were halted for an indefinite period earlier this week. This is not a major problem while the budget remains close to balance, but there are no grounds to assume such a situation will last for a long time. The last time the authorities suspended OFZ auctions was at the beginning of the war in 2022, when the pause lasted for several months. If this uncertainty continues, it could create risks for financing future budget spending this year.

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After a temporary improvement in March and April, when economic growth reached 1.8% and 1.3%, respectively, activity slowed again to 0.3% in May. We expect another slowdown in Q3 because of weaker fiscal support, unstable external conditions, geopolitical tensions, the fuel crisis and other negative factors. Apart from fiscal spending, growth is still supported by relatively resilient domestic consumer demand, which is itself closely linked to the fiscal impulse. The labour market is also gradually cooling, although this is not yet reflected in the official unemployment rate. At the same time, based on recent years' experience, rising inflation expectations could trigger stronger consumer spending rather than higher household savings.

External risks also remain elevated, although the CBR has given them relatively little attention at recent meetings. The main risks now include renewed escalation in the Middle East after the recent pause and rising tensions on the Ukrainian front amid reports that President Putin may take a tougher position on possible concessions.

Next MPC announcement: Sep 23, 2026

Current policy rate: 7.00%

EmergingMarketWatch forecast: 7.00%

We expect the SARB to leave the policy rate unchanged at 7.00% in September and through the end of 2026. The sharp slowdown in inflation to 4.3% y/y in July from 5.0% in June supports the central bank's view that the recent surge was largely a temporary consequence of the oil-price shock. Governor Lesetja Kganyago recently said financial markets appear to understand that the shock was temporary and that inflation would return towards the new 3% target. July's downside surprise provides the first clear evidence that this process is underway.

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Transport was the main source of disinflation as its contribution to headline inflation dropped by 0.5pps thanks to fuel inflation slowing to 20.6% y/y from 34.3% y/y in June. Food inflation also dropped to a 16-year low of 0.9% y/y. Inflation may ease slightly further in August before rising to around 4.4% y/y in September as fuel prices increase again. Nevertheless, we estimate that inflation will average about 4.3% in Q3, down from 4.5% in Q2. This would leave the near-term outlook sufficiently favourable to allow the MPC to remain on the sidelines rather than move to tighten again.

The July CPI release also indicated potential concerns for the SARB that are likely to keep it in a cautious mode. Core inflation excluding food, NAB, fuel and energy edged up to 4.2% y/y and services inflation, although lower, remained elevated at 5.0%. However, these pressures are not yet broad or persistent enough to justify another rate increase, particularly when inflation excluding administered prices is running at only 3.3%. Domestic demand remains fragile as retail sales dropped 0.6% m/m in June undermined by renewed weakness in discretionary categories such as clothing and hardware.

Barring a renewed oil-price shock, a sustained rise in core inflation or evidence that inflation expectations are becoming less firmly anchored, retaining the base rate unchanged until the end of the year seems like the most plausible scenario.

Monetary Policy Committee Statement

Monetary Policy Committee Forecasts and Assumptions

Monetary Policy Review

• Key rate: 8.75%
• Previous decision: Hold (Jul 22)
• Our forecast: Hold
• Rationale: With inflation broadly tracking the CBSL's revised path and the May tightening still feeding through to credit and demand, we expect the central bank to hold rates and see no further tightening in 2026 unless inflation or external pressures deviate materially from its baseline.

The Central Bank of Sri Lanka (CBSL) kept the Overnight Policy Rate unchanged at 8.75% on Jul 22, following the front-loaded 100bps increase delivered in May. The decision reflected the Monetary Policy Board's preference to give the earlier tightening sufficient time to work through market interest rates, private-sector credit and domestic demand.

The case for another rate increase has subsequently weakened. Governor P. Nandalal Weerasinghe has indicated that the CBSL sees no need for further tightening this year under its current baseline, with inflation broadly evolving as expected following the May move. The central bank expects the full impact of the rate increase to take 12-18 months to transmit through the economy, suggesting that policy will remain restrictive without requiring another immediate increase.

The August Monetary Policy Report reinforces this view. While inflation risks remain skewed to the upside, medium-term inflation expectations are still broadly anchored, and the CBSL expects credit growth to moderate as higher borrowing costs and other measures take effect. We therefore expect the OPR to remain at 8.75% on Sep 30 and, under the baseline scenario, through the remainder of 2026.

Inflation Outlook

Headline inflation accelerated further to 7.3% y/y in July from 6.8% in June, moving above the CBSL's 5% target and slightly above the upper end of its ±2 percentage-point tolerance band. However, the increase remains broadly consistent with the central bank's expectation that inflation would rise sharply following the energy-price shock before moderating. The rise has been driven primarily by supply-side pressures. Higher global oil prices have fed through to domestic fuel, electricity and LP gas costs, while increased transport expenses have generated second-round effects across food and other consumer prices. LKR depreciation has added to imported inflation, while volatile food prices have also increased.

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The CBSL expects headline inflation to remain above target in the near term before easing towards 5% as energy-price effects dissipate and tighter monetary conditions constrain demand. Its latest projections place inflation above the February forecast through the remainder of 2026 and into early 2027, before convergence towards target. Core inflation is also expected to rise gradually towards around 5%. Governor Weerasinghe has indicated that inflation is likely to peak around current levels before returning towards the 5% target during H1 2027. This strengthens our view that the CBSL will tolerate a temporary overshoot rather than respond with additional tightening, provided the increase does not become more persistent or feed materially into expectations.

Risks nevertheless remain clearly tilted to the upside. Renewed escalation in the Middle East could raise global energy, shipping and fertiliser costs, while further LKR weakness would increase imported prices. El Niño poses an additional risk through possible disruption to agricultural production and hydropower generation. The CBSL assumes Brent crude averages around USD 80/barrel in 2026 before easing to around USD 70/barrel in 2027.

External and Financial Conditions

External pressures remained elevated during H1 2026. The current account recorded a USD 245mn deficit in H1, reversing the surpluses recorded over the previous three years, largely because of a widening merchandise trade gap and weaker services earnings. The trade deficit widened to USD 5.49bn during January-June, from USD 3.27bn a year earlier. Merchandise imports increased 26.9% y/y to USD 12.39bn, considerably faster than the 6.3% rise in exports to USD 6.90bn. Fuel imports were a major driver, increasing 58.8% y/y to USD 3.2bn, while vehicle imports reached around USD 1.3bn.

Remittances remain the strongest external buffer. Inflows reached USD 777.6mn in July, taking cumulative receipts during the first seven months to more than USD 5.38bn, up 21.4% y/y. Gross official reserves also recovered modestly in July, increasing to USD 6.59bn from a revised USD 6.46bn at end-June, while foreign-currency reserves rose to USD 6.36bn from USD 6.26bn. However, reserves remain below their February peak, and continued external debt servicing will constrain the pace of accumulation.

The LKR depreciated 7.9% against the USD during H1 and was down around 7.4% as of Aug 12 compared with end-2025, according to the CBSL. However, the central bank has noted that exchange-rate volatility has moderated following monetary, fiscal and macroprudential measures. The external position therefore remains a key constraint, but current conditions do not in themselves justify another rate increase. Vehicle-import measures, tighter financing conditions and the May policy move are expected to cool import demand gradually, while strong remittances should continue to provide support.

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Growth Momentum

Economic activity remains relatively resilient. Real GDP expanded 5.1% y/y in Q1 2026, following 5.0% annual growth in both 2024 and 2025. Industry grew 7.2%, services expanded 3.4%, and agriculture increased 1.1%. Construction, manufacturing, financial services, transport and IT-related activities were among the main contributors.

Domestic demand remains the principal growth engine. Consumption increased 5.9% y/y in Q1 while gross capital formation rose 16.5%, pushing overall domestic demand up 9.3%. Private-sector credit also remained strong, rising 27.4% y/y by end-June. However, credit growth is expected to moderate as the May rate increase is transmitted into lending rates.

The CBSL now forecasts real GDP growth of 4-5% in 2026, with near-term prospects having improved relative to earlier expectations as the economic impact of Middle East tensions has proved less severe than initially feared. Growth is expected to remain supported by consumption, investment and continued macroeconomic stability, although tighter financial conditions will temper the pace of domestic-demand expansion. Downside risks remain significant. A renewed geopolitical escalation could weaken exports, tourism and investment through higher energy prices, supply-chain disruptions and softer global demand. El Niño could also reduce agricultural output and hydropower generation, while weaker growth in the US, UK and euro zone would weigh on external demand.

Conclusion

The policy picture has become clearer since the July meeting. The May 100bps increase increasingly looks like a pre-emptive, front-loaded adjustment designed to prevent the energy shock and stronger domestic demand from becoming embedded in inflation, rather than the start of a sustained hiking cycle. Inflation has risen above target, but it remains broadly consistent with the CBSL's revised trajectory, medium-term expectations remain anchored and the tightening already delivered is only beginning to work through the economy. Governor Weerasinghe's indication that no further rate increases should be necessary this year reinforces this assessment.

We therefore expect the CBSL to hold the OPR at 8.75% on Sep 30 and maintain the rate through the remainder of 2026. Unlike previously, we would not characterise the policy bias as tilted towards another hike. Instead, the CBSL is likely to remain on hold unless inflation deviates materially above its forecast, the LKR experiences renewed disorderly depreciation, or a fresh external shock significantly worsens the inflation outlook.

Further Reading

Latest MPC Meeting

MPC Calendar

IMF Country Report, May 2026

• Next MPC meeting: Oct 28
• Current policy rate: 1.00%
• EmergingMarketWatch forecast: Hold
• Rationale: MPC statement of Aug 26

We think that BOT's Monetary Policy Committee (MPC) will keep the policy interest rate unchanged at 1.00% in its meeting on Oct 28, the fifth one for 2026. On Wednesday (Aug 26), the MPC voted unanimously to maintain the key rate at 1.00%. In line with expectations, this was the third consecutive hold decision.

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The prevailing monetary policy framework aims at maintaining price stability, supporting sustainable growth and preserving financial stability. The MPC's view is that the current key rate level is appropriate to support economic recovery. Inflation has risen temporarily due to supply-side factors, and the MPC will continue to monitor the inflation outlook and the associated risks in the future.

Economic growth

Thailand's overall economic growth remains low and uneven, the press release said. It has benefited from the technology and artificial intelligence (AI) cycle. The latest projection of GDP growth in 2026 and 2027 is largely in line with the June forecast, which was 2.3% and 1.8%, respectively.

Goods exports and private investment have risen faster than expected, driven mainly by the technology and AI cycle. However, the share of imported inputs used in goods exports has increased, and the recent investment growth has generated only limited employment gains for Thais. The press release noted persisting adaptation challenges and intense competition faced by SMEs. Meanwhile, the growth of private consumption has been slower-than-expected.

The MPC sees a need for monitoring private consumption after the government support measures expire, and the spillovers from the technology and AI cycle.

Inflation

The MPC now expects that headline inflation in 2026 and 2027 will be lower than the previous projection, primarily on the back of global energy prices. The MPC's latest forecast is of slightly lower core inflation due to lower-than-anticipated cost pass-through. Nonetheless, the committee expects headline inflation to accelerate through Q1 2027 due to the impact of El Niño and gradual cost pass-through. After that, inflation will ease to low levels because of base effects and weak domestic demand. The MPC said that medium-term inflation expectations continue to be anchored within the 1-3% target range.

The committee said it will monitor uncertain developments related to the Middle East conflict, cost pass-through by companies, and medium-term inflation expectations going forward.

We note that in June the MPC projected headline inflation of 2.8% in 2026 and 1.4% in 2027. Core inflation was seen at 1.5% and 1.4%, respectively.

Lending

Credit growth has accelerated, driven mainly by large companies. While part of the lending to large corporates reflects new investment, the bulk of it is for working capital. The contraction of SME loans has persisted because lenders continue to be cautious in extending financing to high-risk borrowers. While overall loan quality has been stable, SME loan quality has deteriorated.

The MPC sees a need for continued monitoring of the debt repayment ability of SMEs and vulnerable households. The committee also called for greater targeted support to vulnerable groups and potential SMEs.

Exchange rate

The exchange rate of the Thai baht is USD/THB 32.765 at the time of writing, which compares with USD/THB 33.705 on Jun 24, the date of the previous MPC meeting. The exchange rate was USD/THB 31.500 on Dec 31, 2025.

The USD/THB has been volatile, driven by Middle East geopolitical developments and shifting market expectations about the path of US monetary policy, the MPC said.

Further reading

MPC decision of Aug 26

Schedule of MPC meetings

Edited minutes of MPC meetings

Monetary policy report

• Current rate: 15.0%
• Next rate decision: Jul 30
• Our forecast: on hold

We expect that the central bank (NBU) will leave its key policy rate (discount rate) unchanged at 15.0% again tomorrow. Most bankers surveyed by Interfax-Ukraine also predicted another on-hold decision. The NBU made on-hold decisions in March, April and on Jun 18. The NBU made it clear earlier that a new easing cycle, in spite of some disinflation, will not be resumed this year, and there have been no indications that this stance has changed.

Data Download

Headline CPI inflation in June eased for the second month in a row, to 7.2% y/y. However, core inflation accelerated further to 8.1%. In its inflation commentary on Jul 10, the NBU said that while headline inflation was in line with projections in June, core inflation came in above projections again, on the back of growing production and service costs and increasing wages. Raw food prices continued to fall, down 0.2% y/y, thanks to growing supply. But growth in administered prices accelerated to 10.7% y/y on the back of increased water supply tariffs. The NBU forecast that price pressures would keep rising.

Eight MPC members out of 11 supported another on-hold decision at the Jun 17 meeting. There was no more unanimity, unlike in previous MPC meetings, minutes published on Jun 29 indicate. Three MPC members advocated for raising the rate by 50bps to 15.5%, arguing that inflation continued to stay above forecasts. Views of MPC members on the future path also diverged. Seven of them argued in favour of maintaining the current stance, but four predicted that the NBU would have to raise the rate to 15.5%-16.0% over the coming months.