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

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

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

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

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

• MPC meeting: Sep 16-17, 2025
• Current policy rate: 15.00%
• EmergingMarketWatch forecast: Hold

Brazil's GDP growth slowed to 2.2% y/y and 0.4% q/q in Q2 2025, confirming that the BCB's restrictive monetary policy is increasingly weighing on the economy. Despite this moderation, the Copom is still expected to hold the Selic rate at 15.00% in its September policy meeting on Sep 16-17. The economic slowdown was partly driven by weaker public expenditures, while private consumption remained resilient, supported by directed credit, real wage gains, a still robust labor market, and government transfer programs. Although job creation has started to ease, labor market conditions remain strong overall -- unemployment reached a record low of 5.8% in the rolling quarter ended in June -- helping sustain demand pressures that justify keeping policy rates at restrictive levels.

Inflation expectations have improved gradually this year, though at a slower pace than the BCB would like. Longer-term inflation forecasts remain well above the 3.00% target, even if analysts polled by the BCB have recently started to revise down their projections for 2027. As BCB Governor Gabriel Galípolo has emphasized, the slow pace of convergence toward the target requires monetary policy to remain tight for an extended period. Even with temporary disinflationary signals in the short term, such as the IPCA-15 posting its first deflation in two years, the Copom is expected to maintain its hawkish stance, signaling that only a sustained anchoring of expectations will create room for rate cuts.

Fiscal uncertainties surrounding the 2026 budget reinforce the case for caution. While the government set a surplus target of 0.25% of GDP (with a tolerance margin of +/- 0.25% of GDP), doubts persist over the feasibility of extraordinary and still-to-be-approved revenue measures, as well as the risk that rising expenditures could outpace revenue gains. Collection prospects remain unclear, particularly as Congress resists new taxes and debates potential changes to the income tax reform that could undermine fiscal balance efforts. These risks continue to weigh on inflation expectations and strengthen the Copom's case for keeping monetary policy restrictive by holding the Selic unchanged.

Overall, the Copom is likely to keep the Selic at 15.00% at its Sep 16-17 meeting. While recent data point to slower growth and some temporary disinflationary forces, underlying demand pressure, fiscal uncertainties, and still-high inflation expectations justify maintaining monetary restraint. In our view, the committee should emphasize that cuts are not yet on the horizon, with a more consistent convergence of expectations required before easing begins, likely only in H1 2026.

• Next MPC meeting:Sep 24, 2025
• Current policy rate: 3.50%
• EmergingMarketWatch forecast: hold

Rationale: The CNB board doubled down on a hawkish stance with another unanimous vote that kept the policy rate at 3.50% in August. The tone of the post-meeting statement remained hawkish, and CNB governor Ales Michl argued that current economic conditions did not allow lower interest rates. While he nominally said that any course of action was possible, this is more in line with the board's policy not to provide forward guidance, even though markets tend to interpret some remarks as such. More importantly, some board members likely consider the current monetary easing cycle as over, a view that we also agree with.

The minutes of the meeting reinforce our impression that the CNB board feels comfortable with the current level of the policy rate. There was surprisingly little disagreement this time, and we saw a consensus that current economic conditions do not allow lower interest rates. Not only that, but the less hawkish board members, like Jan Frait, Karina Kubelkova, or Jan Prochazka, consider monetary conditions no longer that restrictive. These are the people whom we see as the most likely to back a rate cut early, and even they don't bring up that possibility. Furthermore, the board is also fine with a stronger CZK for a while, which means that the CNB will not necessarily follow developments in the euro area.

The new staff forecast also supports a hawkish policy stance. The CNB upgraded its GDP growth forecast to 2.6% in both 2025 and 2026, which is very on the optimistic end of current projections. Even though we have reservations about the CNB's expectation that the German economy will recover quickly, there have been signs that domestic demand is stronger than originally anticipated. This, combined with a sticky service price inflation, only adds to the already hawkish disposition of the board. We remind that the division of the board at the MPC meeting in June was along more and less hawkish lines. Thus, expectations that economic activity, and by extension, nominal wage growth, will likely keep growing fast, will make even the debate of a rate cut impossible, at least for now.

We believe that markets will eventually come to terms that there will be no further monetary easing in 2025. In fact, the next policy move could well be a rate hike, in case domestic price pressure accelerates faster than currently expected. The CNB is currently looking particularly at core inflation, i.e. inflation excluding regulated prices, foods, alcohol, tobacco, and fuels. Housing prices and rents are a source of concern, even though the CNB expects them to peak out some time in early 2026. Labour market pressure is another, so attention will be on the Q2 wage print, to be released on Sep 3. The only possibility for resuming monetary easing we see is if inflation eases to levels close or below the 2% target, and core inflation is not far behind. A softer deceleration will be in line with the current forecast, which implies stable interest rates.

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Further Reading:

CNB board statement from latest MPC meeting, Aug 7, 2025

Post-meeting press conference, Aug 7, 2025 (in Czech)

Q&A after the latest MPC meeting, Aug 7, 2025

Minutes from the latest MPC meeting, Aug 7, 2025

Monetary Policy Report, August 2025

Macroeconomic forecast, August 2025

Meeting with analysts, Aug 8, 2025

CNB board profile

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

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

• Next MPC meeting: August 28, 2025
• Current policy rate: 24.5%
• EmergingMarketWatch forecast: 22.5% - 23.5%

The next MPC meeting is on August 28, and we expect that the committee will resume the monetary easing cycle after holding rates unchanged in July. Following the positive CPI inflation report for July and the relatively stable global and regional security situation, we expect a 100-200bps rate cut. Despite the surge of portfolio inflows over the past year and a half, Egypt has managed to boost its resilience to external shocks and the latest two major external shocks - the US tariffs announced in early April and the 12-day war between Israel and Iran mid-June - had limited impact on the country. Further, the pound has gained some strength since early July, partly due to capital inflows and partly due to US policy to weaken the US dollar, which will allow the CBE to cut the interest rates.

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The CBE slightly revised its baseline and alternative annual headline inflation forecasts and now sees inflation averaging 15-16% in 2025, up from its 14-15% forecast, and 11-12% in 2026 (previously: 10-12.5%). Still, headline inflation is expected to remain contained during H2 2025 driven by the cumulative impact of monetary policy tightening and favourable base effects. Consumer inflation is expected to moderate during 2026, albeit at a slower pace given the expected drag effect from the fiscal measures aimed at tightening the fiscal stance. As such, underlying inflation is expected to converge to its historical average over the medium term as inflation expectations improve further.

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GDP growth recovered in 2024/25, as the FX shortages were eliminated, manufacturing rebounded, FDI inflows picked up, and tourism inflows remain resilient. Remittance inflows soared following the FX reform from March 2024, which supports private consumption. The MPC said that GDP growth should reach its full potential by mid-2026 and the negative output gap is helping to reduce inflationary pressures. Beyond that point of convergence, demand-side inflationary pressures may begin to surface, but the central bank expects that these pressures will remain contained under the current monetary policy stance.

Monetary Policy Committee Statement

Monetary Policy Review

Monetary Policy Committee Meeting Schedule

• Next MPC meeting: Sep 23, 2025
• Current policy rate: 6.50%
• EmergingMarketWatch forecast: Hold
• Rationale: Monetary policy guidance remains unchanged, outlook for prolonged hold on rates remains in place

The MPC is likely to continue its no-change policy on the next meeting in September and this stance is likely to be maintained in the longer term as well. The MPC last kept the policy rate unchanged at 6.50% on its meeting in August and also maintained the overnight interest rate corridor at 1pp around the policy rate. The decision was unanimously expected as it fit the policy guidance for a prolonged hold on the policy rate. According to the updated NBH forecasts, inflation will remain above the 4.0% upper band of the tolerance range around the 3.0% mid-term inflation target and will start slowing as of early 2026. The mid-term objective was expected to be achieved in the beginning of 2027. Recent inflation developments showed that corporate pricing behaviour remained strong outside the margin cap limits, the NBH has pointed out in August.

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The MPC continued to highlight its prioritisation of the price stability objective over any stimuli for economic growth, according to its statement after the August meeting. It repeated the main elements of its policy guidance and NBH governor Mihaly Varga specifically emphasised that the policy guidance was unchanged from the earlier months. Monetary policy will continue to be based on a cautious and patient approach, in our opinion implying the lack of prospects for quick changes in the policy stance. Tight monetary conditions have to be maintained because of uncertainty and inflationary risks related to the geopolitical and global trade conflicts, it said. Ensuring positive real interest rates remained an explicit feature of the monetary policy stance. Consumer inflation expectations have eased recently but remained elevated and their level was not in line with the price stability objective, Varga highlighted after the meeting. Increased tariffs have added to inflation expectations, the MPC warned further. The increase in global food prices and sustained market services inflation represented additional pro-inflationary risks, it pointed out. The fight against inflation was not over yet, Varga cautioned, in our opinion highlighting that monetary policy easing cannot return to the agenda yet.

The MPC approved a surprise cut in the reserve requirement ratio on its meeting in July. The ratio was cut by 2pps to 8% as of Aug 1, while the non-interest bearing share of the required reserves was left at 2.5% of the reserve base. The loosening of the reserve ratio followed the gradual decline of the excess liquidity of the banking system in H1 and will ensure that liquidity developments are neutral towards the monetary transmission, the MPC highlighted. The reduction of the reserve ratio therefore does not mean a change in the continued tight stance of monetary policy, it stressed. Varga also underlined that the adjustment of the required reserve ratio should not be considered a change in the monetary policy stance and explained that it was meant to counter the tightening of liquidity from the expiration of the five-year collateralised loans that were disbursed as support for the banking sector during the coronavirus epidemic.

Post-meeting MPC statement from August rate-setting meeting

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

Minutes from July MPC rate meeting

Inflation Report - Q2/2025

MPC meeting calendar 2025

• Next Policy Meeting: Sep 9 -Oct 1
• Current Policy Rate: 5.50%
• Last Decision: Hold (Aug 6, 2025)
• Our Forecast: Hold
• Rationale: After a cumulative 100bps easing since February, the RBI held its rate in August, and is likely to continue with a pause. RBI has announced that future rate movements will be aligned with macroeconomic fundamentals and latest data.

At its August meeting, the Reserve Bank of India's Monetary Policy Committee (MPC) held its repo rate stable at 5.5%. This follows a deeper-than-expected 50bps rate cut in June. The SDF and MSF remained stable at 5.25% and 5.75%, respectively. The MPC decision was unanimous, signalling that the previous cuts had not fully been transmitted through the system. The MPC highlighted that while growth support remains on the agenda, future easing will be more measured.

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Inflation Outlook

The disinflationary trend has strengthened. CPI inflation eased to 2.1% in June, down from 2.82% in May, marking the lowest level since January 2019. Food inflation turned negative for the first time in over five years, with rural and urban food prices falling by 0.92% and 1.22%, respectively. This trend was driven by declining prices in vegetables, pulses, cereals, milk, and spices, aided by a strong monsoon and high agricultural output. Q1 inflation was below the RBI target at 2.7% (RBI estimate was 2.9%). In the latest meeting, the RBI has revised the inflation forecast down to 3.1% in FY26. However, the central bank mentioned that the inflation is likely to firm in the last quarter of FY26.

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Growth Momentum

India's Q4 FY25 GDP growth came in at 7.4% y/y, bringing FY25 full-year growth to 6.5%, in line with RBI and NSO projections. Key growth drivers included construction (10.8%), public services (8.7%), agriculture (5.4%), private consumption (6%), and investment (9.4%).

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The composite PMI for July rose to 61.1, with the services PMI at 60.5 and manufacturing PMI at 59.1, showing strong expansion. However, industrial output growth slowed to 1.5% in June, indicating a patchy recovery across sectors. On the other hand, agriculture is expected to have a spectacular year given the early arrival of the southwest monsoon and increased acreage this sowing season. Worth noting is that the recent income tax exemptions will also boost private consumption over the course of the year and provide buttress to the economic momentum. GST collections remained strong at INR 1.74tn in June, reflecting continued domestic demand.As a consequence, it is likely that the RBI would wait to assess the impact of the 100bps rate cut before cutting rates.

External and Financial Conditions

India's external position remains comfortable. The current account posted a surplus of USD 13.5bn (1.3% of GDP) in Q4 FY25, and FX reserves stood at USD 699.7bn as of July 4, despite a weekly drop of USD 3.05bn. This still covers over 11 months of imports. Liquidity conditions have entered surplus mode, aided by the RBI's cumulative liquidity injection of INR 9.5tn since January and the phased 100bps CRR cut (to 3% by November). FX inflows and reduced currency leakage have also helped improve liquidity metrics.

On the currency front, the INR/USD stands at 87.2, reflecting renewed pressure from a wider trade deficit (USD 23bn in June) and rising imports from China and the US. Heightened global tariff tensions and US reciprocal duties are key watchpoints. President Trump's latest remarks around imposing a penalty on India for importing Russia crude alongside the imposition on 25% tariff will weigh on growth and the external sector. The INR is expected to remain under pressure in the near.

Conclusion

Following 100bps of easing in the first half of 2025, the RBI is expected to extend its from August into October. Inflation is running well below target, real rates are neutral, and growth is healthy - but global fragmentation, sticky services inflation, and trade volatility warrant caution. Governor Malhotra's comments that future actions would be "calibrated and data-driven" suggest the RBI is entering a wait-and-watch mode. We expect the central bank to hold through Q3, resuming action only if growth deteriorates or inflation slips further below the RBI's comfort band.

Further reading

Last MPC decision

Minutes of the Monetary Policy Committee Meeting (August)

RBI Forward Looking Surveys

Calendar of MPC meetings

• Next policy meeting: Sep 16-17
• Current policy rate: 5.00%
• Our forecast: Hold
• Last decision: Cut, 25bps (Aug 19-20)
• Rationale: BI to evaluate impact of last two rate cuts before deciding on monetary policy direction in Q4

Bank Indonesia cut the key rate by 50bps cumulatively at the last two MPC meetings in July and August, bringing the monetary easing cycle to four rate cuts since the beginning of the year. The central bank justified the rate cuts with the need to support GDP growth in a low-inflation environment, as the rupiah has stabilised against the dollar. Looking forward, Bank Indonesia said it would monitor the space for further rate cuts to stimulate GDP growth.

So far, the central bank has cut the key rate by a cumulative 100bps since the beginning of the year as it has become more and more dovish in light of the low inflation and economic growth slowdown. Moreover, CPI inflation remains subdued and below the midpoint of the central bank's 2.5+/-1% target band. Although it has started to rise, inflationary expectations remain firmly anchored to the central bank's target.

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GDP growth

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

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

Exchange rate stability

The rupiah has strengthened since the beginning of May, erasing some of the losses accumulated in March and April. As a result, it has even gained slightly against the USD since the beginning of the year, with the exchange rate now back into the USD/IDR 16,100-16,300 level. This has given the BI confidence to slash the key rate.

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

Inflation environment

CPI inflation accelerated to 2.37% y/y in July from 1.87% y/y in June, thus returning to more normal levels following the expiration of the temporary reduction of electricity tariffs for households in Jan-Feb.

Looking forward, inflation expectations have also shifted towards lower inflation this year, with most projections pointing to CPI inflation remaining below the midpoint of the central bank's 2.5+/-1% target band by the end of the year. The latest IMF forecast points to 1.7% CPI inflation this year.

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

As a result, BI has ample room to cut rates, given that inflation is well below its target. Moreover, with subdued inflation expectations, more rate cuts are unlikely to fuel inflation in the short term. The impact of imported inflation also seems subdued, as despite the rupiah's weakening, CPI inflation has remained below the BI's target.

Conclusion

Looking forward, we expect Bank Indonesia to keep the key rate on hold in September, in a bid to evaluate the impact of the last two successive rate cuts. There is a possibility for further monetary policy easing in Q4, provided that GDP growth shows new signs of slowdown.

On the other hand, hopes for a Fed rate cut have grown due to the persistent low inflation in the US, which may prompt other central banks to follow suit and reduce rates as well.

Further reading

Last MPC press release

Calendar of MPC meetings

• Next MPC meeting: September 25
• Current policy rate: 7.75%
• EmergingMarketWatch forecast: 25bps cut

The latest sitting minute shows the CB is willing to bring its Monetary Policy Rate (MPR) below 7.50% before year-end, in our view. Three board members see further cuts, in plural, without discussing a pause ahead, suggesting they see easing in the next two sittings, at least, in our view. This strengthens our expectation that the MPR will close the year at 7.25%, a bit below market consensus; however, the dovish tone of the bulk of the board leaves the door open to cutting the policy rate as low as 7.00%, in our view.

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We expect the dovish minute to have a swift impact on market expectations. Indeed, at least one influential local bank is now projecting two more 25bps cuts to close the year, and we expect the consensus to quickly move in this direction.

The minute confirmed, unsurprisingly, Deputy Governor Jonathan Heath is set to oppose any easing ahead, and shows another member, probably Deputy Governor Galia Borja, looking to pause the easing cycle ahead. Thus, a September 25bps MPR cut could come from a 3-2 vote, particularly if CPI inflation disappoints. Although we currently predict the cut will come from a 4-1 vote, with Borja siding with the dovish majority (again, unless CPI inflation disappoints). A 3-2 vote is more likely in November, in our view, considering Borja seems to believe a pause is necessary relatively soon and considering the dovish board of the Monetary Policy Council (MPC) seems all too willing to continue the easing cycle despite lingering inflationary pressures.

Failure to discuss a pause to the easing cycle in November would be surprising to us, anticipating another 25bps cut in December. However, given the dovish position assumed by the board, we don't believe such stance is out of the question.

We are not surprised to see Governor Victoria Rodríguez and Deputy Governor Omar Mejía maintain such a dovish stance at the CB's board, given their previous rhetoric. Indeed, Governor Rodríguez claimed this week that CPI inflation is converging to the CB's 3.00% target, without clear evidence for this and without the market expectations on her side. On his side, Deputy Governor Mejía continues to insist the mid-term inflationary outlook is mixed, pressured down by a weak mid-term growth outlook, despite the potential deceleration having yet any impact on prices.

We are surprised to see Deputy Governor José Gabriel Cuadra taking such a dovish position, believing he was more technical than Governor Rodríguez and Deputy Governor Mejía. Still it will be interesting to see if he takes a less dovish position in the September sitting, considering he is more likely to abandon the dovish side of the board than the CB's governor and Mejía, in our view, considering they might be more influenced by the MORENA regime.

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Recent CPI inflation data are unlikely to sway the CB's board away from its current easing trend, in our view. CPI inflation did accelerate a bit in August H1, to 3.49% y/y, while core inflation remained high at 4.21% y/y. However, the MPC seems all too willing to tolerate lingering inflationary pressure, and the fact that core inflation does not anticipate general inflation is about to converge to the CB's 3.00% target. Indeed, despite this performance, the CB continues to predict CPI inflation will converge to its punctual target by Q3 2026, something not anticipated by the market, with analysts expecting CPI inflation to remain above 3.70% both by 2026-end and until the end of 2027.

Despite this lingering adversity, the dovish side of the MPC notes the currency has remained strong and growth is looking weak, expecting both of these factors to contribute to disinflation ahead, despite their failure to show any significant impact that might suggest CPI inflation will converge to the CB's target.

Overall, we expect the CB will cut its policy rate by 25bps in September, bringing down the policy rate to 7.50% by Q3-end. We are confident the easing will come from a divided board. We expect the CB will vote for another 25bps cut in November. When a new divided vote is likely. Likely monetary easing by the Federal Reserve strengthens our expectation that the MPR will close the year at 7.25 or 7.00%, given the dovish position assumed by the bulk of the board. However, its final position might end up depending on CPI inflation, as lingering pressure might have the CB's board pause the cycle in at least one sitting, closing the year with the policy rate at 7.25%.

• Next MPC meeting: 22 - 23 September 2025
• Current policy rate: 27.5%
• EmergingMarketWatch forecast: 27%

The CBN is widely expected to gradually begin lowering its monetary policy rate at the next MPC meetings on September 22 and 23. This follows four consecutive months of a slowdown in inflation. Nigeria's inflation rate eased to 21.9% y/y in July from 22.22% in June. The CBN has maintained its key rate at 27.5% for three straight meetings, taking a cautious approach as it monitors inflation trends. The continued disinflation could open the door for a rate cut as early as September but some inflationary trends remain a cause for concern. On a monthly basis, inflation edged up to 1.99% from 1.7%, reflecting mixed pressures across the economy. Food inflation remained elevated (rising to 22.8% y/y from 22% y/y) as structural challenges in agriculture and logistics kept food prices high. Core inflation eased to 21.4% from 22.4%. The moderation in headline inflation was supported by naira stability and lower fuel prices, with analysts predicting that the harvest season and improved fuel distribution from the Dangote Refinery could further reduce prices. We anticipate a possible 50bps cut to the MPR in September, provided August inflation data continues to show a moderation.

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Nigeria's foreign reserves reached an eight-month high of USD 40.7bn in the first week of August, driven by increased forex inflows from CBN reforms and a modest rise in crude oil output. However, experts believe the anticipated rate easing in September could affect FX inflows and the stability of the naira. Lower interest rates may reduce the appeal of Nigeria's assets to foreign portfolio investors who are typically drawn to high returns. Analysts warn that sustaining FX inflows could be challenging during the rest of 2025 despite the recent improvements from foreign portfolio investors, diaspora remittances and trade balances.

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Institutions like Afreximbank and the IMF have consistently recommended a careful balance of monetary tools and complementary fiscal policies to restore stability. Roughly two months after their last discussion, finance minister Wale Edun and CBN governor Olayemi Cardoso met on August 19 to strengthen coordination between fiscal and monetary policies. Details of the meeting were scarce but according to a statement from the ministry of finance, Edun believes close coordination help contain inflation, mobilize revenues efficiently and ensure credit flows to productive sectors. In Cardoso's personal statement from the July MPC meeting, he noted that Nigeria's domestic inflation is moderating and that this trend is expected to continue in the coming months. However, he emphasized that tight monetary policy remains important to contain inflationary pressures, especially given increased liquidity from statutory revenue distributions.

Monetary Policy Committee Statement

Monetary Policy Committee Meeting Schedule

• Next policy meeting: 15 September 2025
• Current policy rate: 11.0%
• Last decision: Hold (July 30, 2025)
• Our forecast: Hold
• Rationale: SBP to adopt cautious stance to anchor inflation within 5%-7% target range and safeguard fragile external stability amid widening trade deficit

The State Bank of Pakistan (SBP) left its key rate unchanged at 11% in its first policy meeting of FY26 on July 30. The decision came as a surprise, as all 14 economists polled by Reuters had predicted a rate cut. The central bank maintained a cautious stance primarily due to potential risks to the external sector amid rising imports and limited upside for workers' remittances and export growth. These factors, alongside continued spot forex intervention by the SBP, have put upward pressure on the exchange rate.

Moreover, the SBP also cited a worsened inflation outlook as a key reason for holding the policy rate. Higher energy costs are expected to push inflation above the upper end of the 5%-7% target range during some months in FY26.

While the monetary policy statement offered no explicit forward guidance, the SBP emphasized that the real interest rate should remain adequately positive to anchor inflation within its 5%-7% target range. This, in our view, signals a likely extended pause in the policy rate, giving the central bank room to assess evolving risks before making further moves.

External sector

Pakistan's external sector has strengthened considerably in recent month, as reflected by the favourable current account position, which posted a USD 2.1bn surplus (0.5% of GDP) in FY25, a sharp turnaround from USD 2.1bn deficit in FY24. The improvement has come primarily on account of robust workers' remittances, which has offset the sharp rise in goods trade deficit. June also saw record financial inflows, led by refinancing of Chinese commercial debt and disbursement from multilateral creditors. Subsequently, the SBP's forex reserves reached USD 14.46bn as of July 18. The rise in forex reserves has also come on the back of the central bank's ongoing aggressive spot interventions in the interbank forex market.

That said, pressure is reappearing on Pakistan's external sector. In line with economic recovery and lower cotton output, non-oil imports increased by 12.1% in FY25. Total imports in May hit nearly three-year high of USD 5.5bn, despite muted global commodity prices, before falling to USD 5.0bn in June. The Pakistani rupee has been weakening, with the local currency depreciating by 2.3% between Jan. 1 and Jul 22 before paring some of the losses amid renewed security-led crackdown on illegal currency operators.

The SBP projected the current account to post a deficit of 0-1% of GDP in FY26, due to increased import demand, slowdown in global demand and unfavourable export prices - particularly of rice. Moreover, workers' remittances were expected to grow at a notably slower pace to USD 40bn in this fiscal year, after rising by 26.6% y/y to a record USD 38.3bn in FY25.

Despite the current account swinging into deficit, the SBP's forex reserves were forecast to rise to USD 15.5bn by end-December and USD 17.5bn by end-June 2026, driven by improved financial inflows. In a post-policy media briefing, SBP Governor Jameel Ahmad said that public external debt repayments are estimated at USD 26bn in FY26, of which loans worth USD 16bn are likely to be rolled over.

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Inflation environment

Inflation eased to a nine-year low of 4.5% in FY25. The SBP projected price pressures to pick up in FY26, owing to higher energy prices, following upward adjustment in gas tariffs, phasing out of temporary reduction in electricity tariffs, and recent increase in motor fuel prices. It expected inflation to breach 7% in some months but is likely to remain contained in the target range of 5%-7% in FY26. This outlook remain vulnerable to multiple risks, including uncertain global commodity prices and trade outlook, unanticipated adjustments in administered energy prices, and potential widespread floods.

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GDP growth

The SBP noted that economic activity is gaining momentum, supported by easing financial conditions, positive business sentiments and a gradually strengthening macroeconomic environment. Agriculture sector is expected to rebound as better water availability from recent rainfalls improves prospects for crops production. Moreover, the outlook for manufacturing has also improved, bolstered by the prospect of a trade deal with the US and a continued recovery in household spending, aided by a decline in borrowing cost.

Overall, Pakistan's GDP growth is projected to accelerate to 3.25%-4.25% in FY26, up from an estimated 2.7% in FY25. The forecast is in line with the IMF's projection of 3.6% for this fiscal year.

Conclusion

Overall, the SBP's tone appeared cautiously optimistic - projecting inflation to edge up but remain contained, growth to strengthen, and forex reserves to trend upward. However, by maintaining the status quo on the key rate, it showed its readiness to safeguard the fragile external stability in view of rising imports and the uncertain geopolitical environment. We expect the central bank to hold its current monetary policy stance for an extended period.

Further Readings

Previous policy rate decisions

SBP's The State of Pakistan's Economy report

IMF staff report

• Next monetary policy meeting: Aug 28
• Current policy rate: 5.25%
• EmergingMarketWatch forecast: 25bp cut
• Rationale: Analyst surveys; comments by Governor Remolona; CPI for July; GDP for Q2

We think that BSP's Monetary Board (MB) is likely to reduce the policy interest rate by 25bps in its next meeting on Aug 28, the fourth one for 2025. The BSP has lowered the key rate by 125bps so far in its easing cycle, which began in Aug 2024. At its latest meeting in June, the MB reduced the policy rate by 25bps to 5.25%.

Factors supporting the expectations of another cut this week include first-half economic growth that is slightly below the lower end of the government's target range for 2025, as well as headline inflation that has been below the target band for five consecutive months. The exchange rate of the peso against the US dollar does not seem to be an issue currently.

Data Download

All 26 economists in a Reuters poll expected the MB to reduce the policy interest rate by 25bps to 5.00% on Aug 28. The survey was conducted from Aug 18-25.

In addition, 18 of the 22 economists who reported a longer-term view forecast that the policy rate would decrease by another 25bps to 4.75% by year-end. Two analysts expected a year-end key rate level of 5.00%, and two predicted it at 4.50%. Besides the MB meeting on Aug 28, there will be two more this year - on Oct 9 and Dec 11.

Meanwhile, all 20 analysts in a BusinessWorld poll expected a 25bp policy rate cut on Thursday. The survey was conducted last week.

Earlier this month, BSP Governor Eli Remolona Jr. said that a key rate reduction is "quite likely" on Aug 28. Remolona said that two more rate cuts (following the one in June) are still more likely than one. Three rate reductions are unlikely, though, he noted. The governor made these comments after the release of the Q2 GDP and the July CPI.

Inflation

CPI inflation slowed down to 0.9% y/y in July from 1.4% y/y in June. The latest reading is the lowest since Oct 2019. The inflation target range is 2.0-4.0%. The CPI rose by 1.7% y/y in Jan-Jul. Annual core inflation was 2.3% in July, up from 2.2% in June. The seasonally adjusted CPI edged up 0.1% m/m in July, after increasing by 0.1% m/m in June.

The BSP expects inflation of 2% in 2025, the lower end of the 2-4% target range, Remolona said.

Economic growth

The GDP increased by 5.5% y/y in Q2, accelerating from 5.4% y/y growth in Q1. The latest reading was above the 5.4% growth expected in a Reuters poll. In seasonally adjusted terms, the GDP increased by 1.5% q/q in Q2, after rising by 1.2% q/q in Q1. The Philippine economy expanded by 5.4% y/y in H1.

The government's current economic growth target for 2025 is the range 5.5-6.5%.

LFS, lending growth

The unemployment rate was 3.7% in June, down from 3.9% in May, but higher than 3.1% in Jun 2024, according to the results of the latest labour force survey (LFS). In the y/y comparison, the number of unemployed rose by 20.3% y/y to 1.95mn in June. The number of employed edged up 0.4% y/y to 50.47mn. The labour force hence climbed 1.0% y/y to 52.42mn, the highest recorded number since Apr 2005.

Outstanding loans of universal and commercial banks, net of reverse repurchase (RRP) placements with the BSP, rose by 12.1% y/y at end-June, speeding up from 11.3% y/y growth at end-May. On a seasonally adjusted basis, loans increased by 1.2% m/m at end-June. Annual loan growth has been in the double digits for the 14th month in a row.

Exchange rate

The peso is trading at USD/PHP 57.185 at the time of writing, which compares with USD/PHP 57.27 on Jun 19, the date of the latest MB meeting.

Earlier this month, Remolona said that the BSP wants to prevent the local currency from weakening too much over a short period of time because this leads to inflation. The BSP has been making small day-to-day interventions just to limit the volatility.

Further reading

Press release after Jun 2025 monetary policy action

Schedule of monetary policy meetings

Highlights of MB meetings on monetary policy

Monetary Policy Report

• Next MPC meeting: Sep 2-3, 2025
• Current policy rate: 5.00%
• EmergingMarketWatch forecast: 5.00%

Rationale: The Monetary Policy Council surprised with its July decision to cut rates by 25bps, bringing the key rate down to 5.00%, the lowest since April 2022. With the 50-bp cut done in June also on board, that brought the easing "adjustment" to 75bps. That level is only about 25bps below what had been seen as the maximum amount of cuts for this year at one point talked about, including by MPC members. With the data somewhat mixed (i.e., inflation down, but the economy still strong enough), the outlook for rates at the next policy sitting on Sep 2-3 is decidedly uncertain.

Complicating the picture is that the MPC took its usual August break and so hasn't sat to discuss rates since early July, which seems eons ago. Usually talkative MPC members have also been enjoying the holidays, it seems, since only Ludwik Kotecki has made comments of late. Kotecki said on Aug 8 that he sees at least one more 25-bp rate cut in 2025, though he did see the possibility of two quarter-point moves, according to an interview for the Rzeczpospolita daily. Kotecki said the July slowdown of CPI inflation to 3.1% y/y from 4.1% in June meant the MPC could consider cutting in September. Still, that 3.1% pace came in well above the consensus of 2.8%. Moreover, the MPC will have the flash CPI reading for August, which the stats office will release later this month. That print, in our view, is likely to be crucial.

As noted by Kotecki, the economic data for July to be released in August will also have an impact on the September decision. Kotecki's implication is clearly that a September cut is not a done deal. GDP growth is set to come in slower this year than originally thought, though it is still to quicken from the 2.9% rate seen in 2024. Moreover, the Q2 GDP data did point to a pick-up from Q1. The June data was soft at the same time as which wage growth picked up, giving a mixed message. If the July data to come is similar, this might lead the MPC to wait.

One other key factor possibly to come before the Sep 2-3 sitting is that the government will likely release the 2026 state budget draft. If that draft shows further fiscal worsening, or does not show enough improvement, the MPC might have another reason to hold off from cutting again. Some MPC members might remain cautious also because the outlook for power prices in Q4 remains unclear. This very uncertainty, if not cleared up by Sep 2-3, would seem to us to be a key factor in a potential hold.

Overall, for now, we expect a rate hold due to the uncertainty over power prices and the fact the MPC probably will want to wait to cut more. That said, we could easily see another cut in September, especially if CPI inflation pushes into the 2s in August and the data comes in soft. Sentiment is relatively weak and the inflation outlook seems positive.

Archived video of all MPC press conferences

MPC's post-sitting statements

Latest council minutes

Latest NBP inflation report (July 2025)

Most recent MPC voting results

• Next MPC meeting: Sep 11, 2025
• Current policy rate: 43.0%
• EmergingMarketWatch forecast: Cut by 250-350bps
• Rationale: Inflation slowing across categories, underlying demand pressures ease significantly

The CBT will extend its established easing cycle commenced in the preceding month, strategically positioning for supplementary rate reductions in September, whereby our projections envisage a continued downward calibration spanning 250bps to 350bps. In its evaluations of monthly price developments report, the CBT reflected a dovish tilt, stressing that annual inflation slowed across major categories and that the apparent firmness in the monthly print was largely driven by non-monetary, temporary forces, such as administered prices, tax adjustments, and earlier fuel pass-through, which together accounted for a sizeable chunk of the increase. Moreover, it also highlighted a benign food picture with a flat overall outcome, moderating seasonally-adjusted core goods pricing helped by weak clothing and footwear, and a cooling underlying trend. Inflationary pressures in the pipeline was also esaing as producer-price inflation slowed on a year-over-year basis, the CBT also said. On the other hand, by emphasising breadth of disinflation, isolating one-offs, and playing down persistence, the bank effectively argued that demand-side pressures were ebbing and that policy could look through transient shocks, setting the ground for another rate cut, we believe. The only caveat it left was that energy and services led the monthly increase and services could be sticky, so the setup favoured a reduction at the upcoming meeting. For sure, we assume no fresh shocks to the lira exchange rate, taxes, or regulated prices.

Data Download

The amplitude of the monetary policy adjustment hinges upon two pivotal considerations, in our view. Initially, the August inflationary dynamics will exert considerable influence, we assess. Given the historically subdued price pressures during summer periods, we anticipate the August inflation to remain beneath July levels, subsequently diminishing the annualised rate through base effect mechanics. The annual inflation could decelerate to around 32%, thereby affording the CBT substantial monetary accommodation capacity relative to its current 43.0% policy stance. This monetary space will undoubtedly receive reinforcement from robust tourism receipts, most likely generating a current account surplus over the summer months, enabling the CBT to maintain relative composure regarding FX dynamics, we think.

On the flip side, we maintain conviction that the CBT will evaluate three critical parameters prior to policy implementation. Primarily, an excessively accommodative stance could precipitate FX market tensions, predominantly emanating from domestic sources. This implies that the tourism-induced reprieve may experience absorption. The secondary consideration involves the recognition that despite y/y inflationary deceleration, the annualised three-month moving averages for both Core B and Core C indices indicate approximately 31% y/y trajectories. We acknowledge potential transitory elevation attributable to administrative price modifications enacted during July, suggesting these metrics may demonstrate marginal upward distortion. Nevertheless, these figures unambiguously establish that the inflationary path remains above the CBT's upper boundary forecast of 29% y/y. The tertiary factor involves the Ankara 42nd civil court of first instance's postponement of litigation seeking annulment of the CHP's 38th ordinary congress and suspension of executive bodies until Sep 8. This timing immediately precedes the subsequent MPC meeting. Such political uncertainties may compel the CBT toward heightened prudence in monetary policy formulation, we note.

Ultimately, we expect the CBT to determine the predominant factor among these considerations and calibrate policy accordingly. It may embrace a circumspect methodology and implement a 250bps reduction in case it perceives elevated risk parameters. Otherwise, the reduction magnitude could extend to 350bps, reflecting its confidence in achieving price stability objectives while supporting economic growth dynamics.

Summary of July rate-setting meeting

MPC rate decision in July

Quarterly Inflation Report for Q3

Monetary policy strategy for 2025

• Next MPC meeting: Sep 9
• Current policy rate: 4.75%
• EmergingMarketWatch forecast: 4.75%

Rationale: The BCCh's Monetary Policy Council unanimously voted to cut its benchmark interest rate by 25bps to 4.75% in its Jul 29 sitting, considering this as the only plausible option. At the time the council agreed that the evolution of key variables was in line with the base scenario outlined in its last Monetary Policy Report from June. With this, the MPC established that its monetary policy corridor remained valid, and that a cut was warranted as the inflation convergence process to the 3.0% target advanced as expected. We believe this foreshadows 25bps or 50bps worth of cuts the rest of this year if the base scenario continues to apply, with the 25bps option as the most likely

In summary, the MPC sees the GDP advancing in line with its potential without any relevant output gap, inflation completing the convergence to the 3.0% monetary policy target by H1 next year, and expected inflation anchored at 3.0%. In this context, the MPC believes the monetary policy rate needs to advance gradually toward its neutral range over the next few quarters. There are still relevant risks tied to external geopolitical and commercial conflicts, but with no clear implications for domestic inflation yet.

We expect the MPC to hold in September before cutting again in Q4. In tactical terms, this is a prudent board overall that seems unlikely to cut twice in a row after being on hold for six months, especially when there is no rush and following a CPI reading that surprised the market to the upside. While lending activity and employment have been showing some weakness and provide a reason for cuts, economic growth has been fair. There is also a strong market consensus forecasting a hold for September, and this is a board that takes consensus very much into account and doesn't defy it unless it has a very good reason to do it.

Unrelated to the monetary policy rate discussions, the BCCh surprised by launching an FX reserve accumulation program at the end of last week. BCCh Governor Rosanna Costa emphasized that the program should not have a relevant impact on the exchange rate and that the USD purchases will be sterilized, so the central bank doesn't see the program as having any influence on the monetary policy rate strategy.

• MPC meeting: Jul 31, 2025
• Current policy rate: 9.25%
• EmergingMarketWatch forecast: Cut 25bps

We expect BanRep to resume its cycle of expansionary monetary policy in its Jul 31 sitting, with a 25bps cut in the benchmark rate to 9.0%. We remind that the fiscal shock resulting from the suspension of the fiscal rule in mid-June led the Board of Directors to pause its cycle of cuts, as there was uncertainty about how the fiscal trajectory could influence monetary policy. However, lower-than-expected inflation in June, compared to market expectations, coupled with a sustained appreciation of the peso against the US dollar in June and the first half of July (which has been reversing in recent days), suggests that the majority of the Board will rely on hard data to acquire a dovish tilt, and thus, to find the aforementioned 25bp cut plausible. However, as we will detail below, the composition of the Board, which does not reveal individual votes, adds a layer of uncertainty that makes an accurate forecast difficult.

The case for a cut is based on two pillars. The first is the annual inflation figure for June, which was 4.82%, being the first time it has been below 5% since Oct. 2021. The reading was below market expectations, and provided tangible evidence that the disinflationary process is ongoing. The second pillar, although it comes with a caveat, is the dynamics within the Board. As we reported, the minutes for the last meeting on Jun 27 showed a highly divided Board, with three of the seven members voting for a cut, two for an aggressive 50bps cut, and the remaining one for a 25bps reduction. We believe that the favorable inflation data is the key piece of new information that would persuade at least one of the four members who voted to maintain rates at the last meeting to cut.

Data Download

Our assessment is in line with market consensus. The Reuters survey on Jul 26 found that 16 out of 20 economists polled expect a 25bp cut. The decision, however, does not come in a tension-free scenario. The Board must assess progress on both headline and core inflation (the latter proven to be sticky) against the looming risks of a continuously declining government fiscal position. A cut would therefore send a clear signal to markets that inflation is the dominant variable in the Board's analysis, while maintaining the benchmark rate at 9.25% would unexpectedly and irremediably reveal anxieties within the Board about how fiscal risks are overshadowing any significant progress in key variables (e.g., inflation, output, employment, and related factors).

The economic analysis that would support the possible cut begins with inflation, which presents an ambiguous landscape for the central bank. While the headline measure has been contributing significantly, especially in recent months, falling to 4.82% y/y in June due to lower food and energy price pressures, core inflation has remained persistently high, at almost 5.0%, pressured by services inflation (6.0%) and rising goods prices. With inflation expectations at the end of 2025 hovering around 4.8%, this bittersweet mix justifies resuming the cut in the benchmark rate, but also with gradualism and prudence until inflation developments warrant faster cuts.

Furthermore, the resilience of the economy would signal to the Board to focus exclusively on inflation developments, partly due to robust growth in the first quarter of the year (2.7% y/y) and also supported by the most recent figure for the leading growth indicator, the ISE, with a result of 2.8% y/y (which masks, as we reported, significant sectoral divergences: a stagnant manufacturing sector, a depressed energy sector, and buoyant growth only in some subsectors of the tertiary sector). This momentum in growth could give hawkish members signals that the economy can comfortably prevail with the current rate of 9.25% and proceed cautiously, prioritizing a war on inflation without entering into a difficult inflation-growth trade-off.

As we mentioned, the fiscal context is perhaps the most difficult variable, if not the most critical risk factor, for maintaining a hawkish stance. The suspension of the fiscal rule was mentioned in the minutes of the last meeting as an event that affects the sustainability of public finances and could reduce monetary policy maneuverability. After the June meeting, Finance Minister Germán Ávila took the opposite position, arguing that only a 50 bps cut could have given the economy the boost it needed. This conflict between the government and the central bank could lead to a classic situation of 'fiscal dominance,' in which the independence of the central bank could be compromised to support government financing. That said, June's hawkish stance unequivocally signaled BanRep's independence to the market, and it remains to be seen how quickly and credibly the government will implement any fiscal measures.

Concerning the external context, although it is not insignificant, we do not see it as decisive for this coming meeting. The nominal exchange rate has been a barometer of the external context: sustained appreciation in the face of uncertainty over the trade war and tensions between Israel and Iran, which drove oil prices up, but which quickly reversed in the face of President Trump's softer rhetoric and openness to formalizing trade agreements (as in the recent case of the EU).

In short, we believe there is a case for a moderate 25bp reduction in the benchmark rate, supported by (1) favourable inflation data, (2) a divided but almost evenly split Board, with swing members who could tip any vote in an unexpected direction, and (3) rising real rates due to lower inflation in a context of a constant benchmark rate. In the latter case, the point is not to generate unexpected pressures on the economic recovery. That said, we cannot dismiss a likely alternative scenario, in which the reference rate remains unchanged, supported by (1) the traditional "prudent", data-driven approach BanRep touts, (2) the scenario of possible 'fiscal dominance' that compromises the independent work of the central bank, especially in order not to compromise the country's risk premium and the sustainability of public debt, and (3) a prudent pause to monitor inflation performance, where the July data, to be published on Aug 8, will be key.

In this regard, as we have been reporting, the composition of the Board is key and compromises any forecast. The Board is chaired by the Minister of Finance, appointed by the President. In this case, Petro has been insistent on greater and faster cuts, and his minister has followed suit. At the beginning of the year, two new members joined at the request of the president: Laura Moisá and César Giraldo. We would expect both to always align with the government. Still, Moisá, whose appointment was controversial in the market due to her 'lack of academic and monetary policy experience,' hinted at a 'gradual approach to rate reduction' in her first public statements a few weeks ago, showing herself to be a 'swinger,' even 'hawkish.' Petro also appointed Olga Acosta, and although the market welcomed her appointment, she has shown a tendency towards BanRep's technical, data-driven approach, so that we would classify her as a "swinger".

On the other side is Governor Leonardo Villar, who has publicly reiterated a prudent approach to monetary policy management, subject exclusively to new information available, probably due to his experience as a member of the Board for 12 years, supporting BanRep's technical staff. He would be joined by Mauricio Villamizar, who, interviewed by Bloomberg a few days after the interview with Moisá, made clear his hawkish stance, contradicting the government's claims of 'benign effects of inflation' and justifying this in his work as a researcher at the central bank and deputy manager of economic studies. Finally, Villar would also be followed by Bibiana Taboada, appointed by President Iván Duque, daughter of one of former President Álvaro Uribe's close allies, who would have no incentive to favour Petro vis-à-vis the BanRep technical team and whose appointment was highly controversial at the time due to her credentials in public policy, age, and inexperience in monetary policy.

All this to say that the vote could go either way, beyond the market forecast and what the economic analysis presented here would suggest as the most likely outcome.

• Current policy rate: 4.50%
• Next monetary policy meeting: Sep 29, 2025
• Expected decision: Hold, 25bps cut possible

The MPC left the policy rate unchanged at 4.50% on Aug 20, which was in line with expectations and was due to the still high geopolitical uncertainties and the still higher than the 1-3% target range inflation. The next policy rate decision would be on Sep 29 and we think that the rate-setters, who have many times stressed that the monetary policy they pursue would be prudent, might find it difficult to cut the rate again as uncertainties cloud the horizon with respect to the Gaza war. The government is planning to take over the Gaza city and a plan seems to be already put in operation while at the same time, it is considering a response to a new ceasefire proposal. Any outcome bears risks and might raise the uncertainties as expanding the operation would affect economic activity while a truce might lead to a turbulence on the domestic political scene due to opposition on the part of the far-right parties for ending the war, we think.

Data Download

Inflation eased to 3.1% y/y in July but the MPC stressed it is still volatile and the non-tradable component inflation was still high. Most of the volatility is due to flight tickets after a change in methodology. Still existing supply side shortages that might not close fast enough to respond to potential surge in demand are another factor that can drive inflation higher. The draft of reservists is a major supply shortage and this might deteriorate if the government proceeds with its plan to take over the Gaza city. Some upward impact might come also from rental prices after the damages to buildings by Iranian rockets, which is already seen in Jun-Jul prints. On the other hand, the shekel appreciation is to offset some of the upward pressure but it is not clear for now what forces would prevail. The latest inflation expectations, one of the major considerations the MPC is looking at when deciding on the policy rate, pointed to continued moderation in the inflation environment. Inflation has been above the 1-3% target range for more than a year already. The BoI still expects it to enter the target in H2 though as the latest forecast released in July sees inflation at 2.6% y/y in Q4 on average and to ease further to 2.2% y/y on average in Q2 2026.

GDP data point to a fall in GDP in Q2 but the BoI explained that this was the sole result of the Iran war and when excluded, GDP has continued increasing in Q2. It also said that high frequency indicators point to strong recovery in the period since the hostilities with Iran ended and some indicators are at a higher level compared to the pre-Iran war position while others are still catching up. The BoI downgraded its growth forecast for this year in its July update but increased it for 2026 as recovery after the wars is expected to be faster. On the other hand, the impact of the new US import tariffs is expected to be lower. We note that US tariffs were expected to cut from growth 0.5pps each in 2025 and 2026, according to the BoI forecast from April. Thus, we think that the BoI might continue the cautious approach and make sure that inflation has been entrenched within the target interval and risks to geopolitical stability have decreased further before making any move, in our opinion. The research department expects the policy rate to reach 3.75% in one year from now. This is not a forecast of the MPC but has likely been endorsed and if fulfilled, this means three rate cuts in the next one year.

Board statements, press briefings, minutes from MPC meetings

Calendar of MPC meetings

Latest BoI macroeconomic forecasts

Monetary policy reports

Bank of Israel Law

The Monetary Committee

• Current policy rate: 16.5%
• Next monetary policy meeting: Aug 29
• Expected decision: hold

The NBK is still expected to leave the base rate on hold on Aug 29. It has not released any new statements to suggest a change in its intention of leaving the rate at 16.5% until year-end. We remind that monthly price growth was slightly lower in July and the CPI rate was flat in y/y terms (11.8%). New data shows both seasonally adjusted and core inflation eased over the month. The deceleration was not extensive, but corresponds with the earlier signs of a more positive trajectory. The worsening of households' inflation expectations (14.2%) will be a concern, though not a surprise as this type of volatility has been typical in recent years.

Data Download

We still expect the NBK not to make any revisions to its macro forecasts this month. The overall risk balance has not really changed and remains tilted to the downside. At this stage, the USD/KZT rate has stabilised around 540, but still has inflationary implications. Potential fluctuations of the RUB/KZT rate can also cause pressure. Domestically, electricity tariffs were raised as of August, which will have an effect before the tariff hike halt in Q4. The tax reform, credit growth, and demand conditions have also been highlighted by the NBK.

All in all, the central bank is not under pressure to deliver a rate hike at present, even though it has not excluded the possibility of monetary tightening in 2025. Easing is definitely unlikely, while continued on-hold decisions are the baseline scenario. If a rate cut can be delivered in 2026, it will probably happen later on in the year as we expect an initial shock once the new tax code comes into effect.

• Next policy meeting: Aug 28
• Current policy stance: 2.50%
• Our forecast: Cut by 25bps
• Last decision: July 10 (Hold)
• Rationale: Bank of Korea likely has leeway to resume rate cuts in August after late June-early July mortgage lending curbs

The Bank of Korea is likely to cut its Base rate by 25bps at its next policy meeting on Aug 28 as recent data has shown that the late June-early July mortgage curbs were likely sufficient to stabilize household debt. The BOK decided to keep its policy rate unchanged at 2.50% in the previous BOK meeting on July 10 citing the risks of an overheating real estate market. BOK clearly stated in July that it needs to monitor the impact of macroprudential measures before it resumes rate cutting. At the same time, the government has hinted that more macri-prudnetial measures will be approved down the line if household debt does not stabilize.

Data Download

Both apartment price growth and household debt growth have eased after regulators introduced hard cap for mortgage loans at KRW 600mn for speculative areas in Seoul on June 27 and the stressed DSR ratio phase 3 came into effect on July 1. Household loans rose by KRW 2.8tn m/m in July at the slowest pace in 4 months, indicating an instant reaction of the credit market to the macro-prudential measures. In addition, apartment prices in Seoul rose at a relatively tepid pace by 0.14% m/m in the first week of August which compares to 0.4% w/w growth in the last week of June.

Meanwhile, headline inflation remains subdued as CPI inflation eased to 2.1% y/y in July from 2.2% y/y in June amid decelerating food and energy prices. At the same time, the economy remains hampered by the downturn in the construction sector as construction output fell by 12.3% y/y in June and construction orders were also down by 13.6% y/y. Industrial production and exports are also expected to take a hit in H2 as the impact of US tariffs is finally expected to become visible. In our view, a rate cut could help revitalize the construction sector and at the same time it could provide better funding conditions for tariff-hit businesses.

Despite its temporary pause on July 10, the BOK clearly remains in a rate cutting cycle with 4 out of its 6 MPC members expecting more rate cuts in the next 3 months. In addition, the minutes from the July 10 meeting showed that board members still consider it necessary to lower the interest rate further and they cited the outcome in the tariff talks with the US as a key risk. Since July's meeting, tariff uncertainty has been mostly cleared after the 15% tariff deal clinched on July 31, even though concerns about the timing implementation of the auto tariff reduction to 15% from 25% remain.

Moreover, the urgency to deliver rate cuts has diminished after the government approved a second supplementary budget in June which includes consumption stimulus program worth KRW 14tn that started to be implemented in July. The Bank of Korea expects that the second supplementary budget will boost growth by just 0.1pps in 2025, but the effects of the improving political stability and consumption stimulus are already visible. For instance, consumer confidence reached the highest level since 2018 in July amid surging sentiment about the economy.

Overall, we expect 2 more rate cuts by the BOK until the end of the year to bring the policy rate to 2.00% by end-2025. In our view, the BOK has leeway to cut rates as its main concern remains household debt which could be addressed by macro-prudential measures. As the Federal Reserve is also anticipated to resume easing in September, while the Korean won has strengthened persistently against the dollar since May, there are no other serious obstacles to rate cuts. The central bank needs to see substantial re-acceleration in apartment price growth in the second half of August in order to defer its rate cut yet again, in our view.

Last MPC press release

Calendar of MPC meetings

• Next policy meeting: September 4, 2025
• Current policy rate: 3.00%
• Our forecast: Hold
• Last decision: Cut by 25bps (July 9)
• Rationale: Despite external headwinds, BNM likely to maintain status quo in view of strong domestic fundamentals

We expect Bank Negara Malaysia's monetary policy committee to hold its overnight policy rate steady at 2.75% in its meeting on September 4. While risk of slower growth from the US tariff persist, the central bank is likely to stay cautious and stand pat, drawing comfort from resilient domestic demand amid favourable labour market conditions and robust investment activity.

Thus, we see BNM's 25bps rate cut in July - the first rate cut since in five years - as a one-off adjustment rather than the beginning of an easing cycle. BNM termed the rate cut as a "pre-emptive" measure to preserve and secure Malaysia's steady growth trajectory due to external headwinds. Nonetheless, further easing cannot be ruled out if the growth outlook deteriorates. With inflation in check and the ringgit strengthening, BNM has sufficient policy space to deliver another rate cut if needed.

GDP growth

Last month, BNM revised its GDP growth forecast to 4.0%-4.8% in 2025, down from 4.5%-5.5% projected in March. The revision came just days before Malaysia secured a reduction in tariff on its exports to the US to 19%, lower than the 25% earlier proposed by the Trump administration. However, the central bank said that the updated growth forecast accounts for various tariff scenarios, ranging from persistently elevated tariffs to more favourable trade negotiation outcomes.

While the tariff, alongside weaker sentiment and lower-than-expected commodity production, are expected to weigh on growth, Malaysia's export competitiveness may remain largely intact, as other major export-oriented ASEAN countries would generally face similar tariff rates.

Moreover, the government is confident that most of Malaysia's semiconductor exports to the US will be shielded from the Trump's proposed 100% tariff on imported chips. Last week, Investment, Trade and Industry Minister Zafrul Abdul Aziz told the parliament that 65% of Malaysia's semiconductor exports to the US originate from US companies operating in Malaysia, allowing them to qualify for tariff exemption.

Malaysia's GDP growth accelerated to 4.5% y/y in Q2, from 4.4% y/y in Q1, driven by stronger activity in the services and agriculture sectors. These, along with continued double-digit growth in the construction sector, point to solid domestic fundamentals. In contrast, the key manufacturing sector recorded its slowest expansion in five quarters due to weaker non-electrical and electronics exports.

Data Download

Inflation environment

Inflationary pressures in Malaysia remain subdued, with CPI inflation easing to 1.1% y/y in June - the lowest since Feb. 2021. In the first half of this year, inflation averaged 1.4%, down from 1.8% in the same period last year. As a result, BNM last month lowered it CPI inflation forecast to 1.5%-2.3% in 2025, down from the earlier projection of 2.0%-3.5%, citing moderate demand and cost conditions.

The central bank reiterated that the impact of domestic policy measures on inflation is expected to remain contained. The government has expanded the scope of Sales and Services Tax (SST), effective July 1, bringing more goods and services under the tax net. Additionally, the rationalization of widely used RON95 gasoline subsidy is expected to be rolled out later this year, with the government set to to announce detailed implementation plans by the end of September.

Data Download

Exchange rate

The ringgit's performance continues to be driven primarily by external factors. The local currency has appreciated 6.0% year-to-date against the USD. This was partly aided by strong inflows into the Malaysian bond market, which recorded a net MYR 26.9bn inflow during Jan-May of this year before overseas investors turned net sellers in June and July, as US tariff uncertainty and growing expectations of a delayed interest rate cut by the US Fed dampened appetite for local currency bonds.

Malaysia's external position continues to improve, with international reserves rising to USD 121.4bn as of end-July - the highest since Nov. 2014. This gives the central bank greater capacity to curb exchange rate volatility if necessary.

BNM believes Malaysia's favourable economic prospects and domestic structural reforms, complemented by ongoing initiatives to encourage flows, will continue to provide enduring support to the ringgit.

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Conclusion

In a proactive move, BNM cuts its key rate by 25bps in July in response to the potential direct and indirect impact of US tariffs on Malaysia's economy. The resulting lower borrowing costs, along with stable price conditions and tight job market, are expected to help sustain consumer spending and support overall growth. The rate cut follows a 100bps reduction in the statuary reserve requirement (SRR) ratio in May, bringing it to a 14-year low of 1%, a measure expected to inject about MYR 19bn in liquidity into the banking system.

We expect BNM to hold its key rate at 2.75% for an extended period unless further downside risks to growth emerges. This outlook is in line with the median forecast of economists polled by Reuters, who expect the OPR to remain at the current level until at least the end of 2026.

Further Readings

Previous OPR decisions

Meeting schedule

BNM annual report

• Next MPC meeting: Oct 8, 2025
• Current policy rate: 6.50%
• EmergingMarketWatch forecast: Hold

Rationale: Romania's central bank will very likely maintain the key policy rate at 6.50% in the Oct 8 MPC meeting and will very probably make no changes by the end of the year as well due to the high inflation that spike in July to much-higher than expected 7.8% and is expected to continue gaining speed in the following months, as suggested by NBR governor Mugur Isarescu at the presentation of the August Inflation Report. The NBR assessed in its press release announcing the policy rate-hold decision on Aug 8 that the government fiscal measures package would exert significant pressure on inflation in Q3. Apart from that, food inflation has been on an upward trend too, but that might ease with the stabilisation of the RON rate after the government committed reforms to reduce the fiscal gap, we think. The high inflation is not expected to result in a rate hike either, Isarescu assured, adding that monetary policy was partly aimed at avoiding recession risks. He said that there were risks for a recession mainly due to external factors because of the export-dependency of the industrial sector, to which massive reduction in consumption is to contribute too. Acceleration of the EU funds absorption might offset those and the country might avoid a recession, however, the governor added. Isarescu said that economic growth might linger in the 0-1% range in the next year, according to his estimates.

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Inflation was much higher than expectations in July, speeding up to 7.84% in the month from 5.66% y/y in June. Part of the jump was due to the removing of the electricity price caps, which impact turned out to be somewhat higher (2.2pps) than the one expected by the NBR (2.0pps). This will maintain inflation higher in the following one year and the increase in the VAT rate and the excises are to add further 1.6pps and 0.4pps to inflation as of August, respectively. Thus, inflation will likely remain above 9% at the end of this year after peaking at 9.6-9.7% y/y in September, NBR governor Isarescu said, meaning that the inflation forecast of the NBR for 8.8% y/y at the end of 2025 is already outdated as it did not include the July print.

The fiscal consolidation measures are going to have a containing effect on private consumption and inflation will start falling gradually already at the start of 2026 and more visibly as of Q3 2026 after the higher base enters the calculations. Thus, inflation will enter the target at the end of 2026 and will continue slowing down to 2.7% y/y in Q2 2027 as the fiscal consolidation measures are to assist in stabilising the country's economy. Thus, a rate cut for pushing up economic growth does not appear likely in the near future, we think.

• Сurrent policy rate: 20.0%
• Next monetary policy committee meeting: July 25
• Expected decision: 200bp cut

We agree with the market that a 200bp cut should be the baseline scenario for CBR's decision this Friday. While uncertainty around the outcome remains, we can confidently exclude any hike options. The CBR may still opt for a 100bp cut to buy time before the September MPC meeting or go for a 300bp cut to prevent further cooling and support the budget. However, based on the latest data, we believe a 200bp cut is the most logical choice, possibly accompanied by a slightly softer signal, though still closer to neutral, to temper market expectations.

Inflation slowed in June (0.2% m/m vs. 0.4% m/m in May), and the July weekly print (including utility tariff indexation) faded quickly. As of July 14, annual inflation declined to 9.3% y/y. While this remains well above CBR's target, the SAAR calculated by the CBR dropped to the 4.0% target in June, down from 4.5% in May. PPI inflation has been declining y/y since February, and this trend likely continued in July, despite utility indexation in industry. Inflation expectations have stabilized, albeit at elevated levels. Overall, CPI dynamics support a relatively strong rate cut. However, the inflation trend could reverse sharply, as observed during the previous tightening cycle, which can stop the CBR from deeper than 200bps cuts.

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Real sector data also point at cooling of the economy. GDP growth remained low at 1.2% y/y in May and retail sales continued to moderate, though unemployment fell to a record low of 2.2%. June industrial production data are to be released tomorrow evening, but PPI surveys suggest further slowdown, making a strong rebound in output unlikely. On the other hand, real wage growth in April exceeded March levels, which is an alarming signal for the CBR. On balance, this set of arguments also supports a rate cut.

The updated macroeconomic forecast, to be announced with the rate decision on Friday, will play a key role in setting the policy trajectory. On market rates, all of the top 20 banks have already lowered both deposit and lending rates. They made similar moves in June, which helped suppress borrowing activity among households and businesses. Household lending is now contracting at a faster pace (excluding preferential mortgages) while corporate lending has slowed to its weakest since the war started.

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CBR officials, including Governor Nabiullina, have said a rate cut is on the table if the positive trend holds - that is likely the most dovish signal we could expect. That said, the CBR has a track record of surprising markets in both directions, so this does not guarantee a 200bp cut. A smaller or larger move may deeply depend on the budget process. By the September meeting, the CBR should have more clarity on further budget amendments and the 2026 draft. With oil prices low, ruble REER appreciating, and a cooling economy potentially weighing on non-oil revenues, the 2025 deficit may widen, thus implying stronger fiscal stimulus. Additionally, speculation about potential peaceful resolution to the conflict in Ukraine is growing, amid uncertainty over the US political stance. A ceasefire or peace deal could lead to a sharp drop in fiscal spending and slower income and industrial growth. However, we doubt such a scenario can materialize in the coming months.

Next MPC announcement: September 18, 2025

Current policy rate: 7.0%

EmergingMarketWatch forecast: 7.0%

We maintain our interest rate call for the next MPC meeting at a hold, keeping the repo rate at 7.0%. While the July decision to cut by 25bps was in line with expectations, the SARB's latest guidance suggests that further easing is unlikely in the near term. The SARBS's policy focus has shifted toward achieving inflation at the bottom of the 3-6% target band, effectively anchoring at 3% instead of the previous 4.5%, without undermining credibility or fuelling exchange rate volatility.

Inflation and growth outlook

CPI inflation accelerated to 3.0% y/y in June, with core inflation at 2.9% y/y, placing both measures at the bottom of the SARB's 3-6% target range. The still low print was supported by a stronger rand and subdued goods price pressures, although food inflation edged higher, driven mainly by rising meat prices, and the decline in fuel costs slowed compared to earlier months. While the current readings support the SARB's shift toward a 3% inflation anchor, the bank expects and acceleration in the second half of the year driven by base effects, food price pressures and slower declines in fuel costs. We forecast July CPI at 3.3% and expect stability in August. Achieving and sustaining the new 3% anchor will be challenging given persistent structural cost pressures, including public-sector wage increases and above-CPI electricity tariffs.

On the growth side, Q2 GDP is likely to surprise on the upside after stronger-than-expected mining and manufacturing output in June. Industry alone could add 0.3-0.4 percentage points to headline GDP growth, while agriculture is expected to perform well on the back of the maize harvest and a forecasted rebound from last year's drought. This could be partially countered by the meat industry which has been hit by disease in the second quarter. The latest data published by the stats office also suggest that even with retail sales slowing in June, the sector should still make a positive contribution to Q2 GDP. Nevertheless, underlying growth remains weak, and the SARB has cut its medium-term growth forecasts to only 0.9% this year and 1.3% in 2026, though still forecasting an acceleration to 2.0% in 2027.

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Global and domestic risks

Tariff risks have now materialised, with the imposition of higher US import charges on South African goods weighing on the rand. However, local asset performance has so far held up reasonably well, aided by broad dollar weakness. The SARB continues to flag global uncertainty as a key risk factor, noting that permanently higher tariffs or renewed geopolitical tensions could disrupt global trade and capital flows. The extended hold in US interest rates is also a headwind for emerging market assets, including South Africa.

Policy implications

Given the SARB's commitment to the new 3% inflation anchor, the recent rand volatility, the likelihood of rising inflation in H2, and persistent external risks, we believe the MPC will prefer to pause at 7.0% in September. While the real policy rate remains high, the Bank appears willing to maintain a restrictive stance until the inflation outlook is more firmly anchored at its new objective.

Monetary Policy Committee Statement

Monetary Policy Committee Forecasts and Assumptions

Monetary Policy Review

• Next policy meeting: September 24
• Overnight policy rate (OPR): 7.75%
• Previous decision: Hold (Jul 23)
• Rationale: CBSL is likely to pause to assess inflation turnaround and policy transmission amid easing deflation and resilient domestic demand.

At its July 23 meeting, the Central Bank of Sri Lanka (CBSL) held the Overnight Policy Rate (OPR) steady at 7.75%, following a 25bps cut in May. The decision reflects the Monetary Policy Board's view that the current stance remains consistent with guiding inflation toward its 5% medium-term target, while allowing time for recent easing to filter through credit channels. The hold also marks a strategic shift-from active easing to data-driven observation-as CBSL balances a mild demand recovery with persistent global and domestic risks.

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The symmetric corridor remains in place, with the Standing Deposit Facility Rate (SDFR) at 7.25% and the Standing Lending Facility Rate (SLFR) at 8.25%, as set under the revised monetary policy framework introduced in November 2024.

Inflationary Landscape

Deflationary pressures have continued to ease. Headline inflation, measured by the Colombo CPI, registered a y/y decline of 0.3% in July, a significant moderation from the trough of -4.2% in February. Core inflation rose to 1.6% y/y, suggesting that demand-side price dynamics are gradually re-emerging.

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CBSL projects inflation to turn positive by Q3 and gradually converge with the 5% target by 2026. The 15% upward revision in electricity tariffs implemented in mid-June is expected to accelerate the headline recovery, especially after eight consecutive months of deflation. CBSL's July statement reinforced this outlook, citing rising core inflation and stabilising inflation expectations.

In this context, the decision to pause reflects a deliberate effort to allow prior cuts to work through the system and to prevent premature easing amid a fragile disinflation cycle.

Growth Dynamics

Sri Lanka's economy grew 4.8% y/y in Q1 2025, easing from 5.4% in Q4 2024. The slowdown was driven primarily by weaker industrial performance, especially in construction. However, services remained stable-supported by banking, insurance, and transport-while the agriculture sector's contraction narrowed to 0.7% y/y, suggesting signs of recovery.

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Forward indicators are mixed. Industrial output rose just 1.7% y/y in April, the weakest in nearly a year, but the Manufacturing PMI improved to 62.2 in July, signaling a return to moderate expansion. Robust private credit growth-supported by easing lending rates and ample liquidity-continues to reinforce consumption and investment demand. CBSL sees this trend as a key driver of second-half recovery.

External Sector

Despite a rising trade deficit, Sri Lanka's external accounts remain resilient. The country posted a current account surplus of USD 190.6mn in May, lifting the cumulative Jan-May surplus to USD 1.3bn.

Worker remittances totalled USD 697.3mn in July, marking five consecutive months above USD 600mn. Cumulatively, remittances recorded USD 4.4bn in Jan-Jul. Tourism earnings crossed USD 2bn in Jan-Jul period. Gross official reserves held firm at USD 6.5bn as of end-June, aided by steady CBSL FX purchases and the timely release of the fifth IMF-EFF tranche in early July. While the rupee has depreciated slightly year-to-date, reserve adequacy remains strong, providing a buffer against external shocks.

Outlook

The CBSL has entered a wait-and-watch mode, pausing to evaluate inflation trends, credit transmission, and external risks before considering further rate moves. The May rate cut is still working through the system, with lending rates and market yields adjusting downward and credit growth gaining traction. We expect the policy rate to remain unchanged through Q3 2025, unless inflation rises more quickly or external vulnerabilities materialise. Any further easing will depend on a durable return to positive inflation, fiscal stability, and a supportive global environment.

CBSL is likely to remain vigilant of global energy prices, trade realignments-including developments around the US tariff deal-and financial market volatility in shaping its next steps. For now, policy is calibrated to anchor inflation expectations without derailing the recovery path.

Further Reading

Monetary Policy Review, July 2025

Monetary Policy Review, May 2025

Monetary Policy Review, March 2025

• Next MPC meeting: Oct 8
• Current policy rate: 1.50%
• Previous meeting (Aug 13): Cut by 25bps
• EmergingMarketWatch forecast: 25bps cut or freeze
• Rationale: BOT to monitor economic data to determine need for further cuts

The Bank of Thailand (BOT) is likely to do one more rate cut until the end of 2025 after cutting rates 3 times so far in 2025, in our view. However, the timing of the rate cut remains uncertain as it could arrive in either the October or the December meeting. The economic data released until Oct 8 is thus going to be decisive for BOT's decision on the policy rate.

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The BOT is bracing for a major leadership transition as Vitai Ratanakorn will be take office as the new governor replacing outgoing governor Sethaput Suthiwartnarueput. Vitai is known as a big proponent of interest rate cuts compared to his hawkish predecessor Sethaput Suthiwartnarueput. At the same time, inflation remains subdued as consumer prices fell for the fourth consecutive month in July, paving the way for more rate interest rate cuts.

At the same time, Deputy BOT governor Piti Disyatat said in a Bloomberg interview on Aug 20 that cutting more rates in 2025 would require "significant material deterioration" in the economic growth outlook. Piti underlined that the current 1.5% interest rate level remains very low in historical perspective as the policy rate has been below 1.5% in only three occasions over the past 25 years. At the same time, he cast doubts whether more easing will help to revive growth as he stated that much of the slowdown in economic growth is due to structural factors.

Thus, Vitai's dovish views on monetary policy are likely to clash with the current prevailing view in BOT's MPC that more rate cuts are not urgently needed. It should be noted that together with the new BOT governor Vitai Ratanakorn, a new deputy governor and a new external member will be also present at the next meeting. However, Piti Disyatat said that he expects policy continuity as long as the economy "develops as we predict."

Looking at recent economic data, the economy expanded by 2.8% y/y in Q2 on the back of the very strong performance of exports. However, economic sentiment remains weak as the Thailand Industry Sentiment Index (TISI) fell to the lowest level in 3 years in July. In addition, private consumption remains subdued due to the lackluster growth in foreign tourist arrivals.

Overall, we think that economic conditions warrant one more rate cut in 2025, but we don't think that the BOT will be too aggressive and bring the policy rate to 1% or below. That said, both political risks and economic risks remain high and the BOT could find itself in a spot in which it is forced to loosen policy even further. For instance, a potential government collapse after the Constitutional Court's ruling on PM Paetongtarn's ethical breach case could worsen economic sentiment and force the BOT to act.

Useful links

MPC meetings

MPC members

• Current rate: 15.5%
• Next rate decision: Sep 11
• Our forecast: On hold

The board of the central bank (NBU) on Jul 24 decided to keep the key rate on hold at 15.5%. The third on-hold decision in a row was widely expected. The NBU stated that headline CPI inflation was down to 14.3% y/y in June after peaking at 15.9% in May, while core inflation, which fell to 12.1% y/y in June, was lower than anticipated. The NBU expects further disinflation in H2 2025 on a better harvest, moderate external pressures, and an improved labour market. At the same time, it revised the inflation forecast for end-2025 upwards to 9.7% from 8.7% and for end-2026 also upwards to 6.6% from the target of 5.0%.

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The NBU is going to cut the key rate by only 50bps to 15.0% by end-2025, whereas earlier the rate was expected to decrease to 14.0%. The NBU's new forecast for end-2026 is 12.6%, up from 11.6% previously. Russia's war naturally remains the main risk. On the upside, Ukraine has secured enough foreign assistance for this year. President Volodymyr Zelensky was warned by donors last week that assistance could be cut for him signing a law aimed to dismantle independence of Ukraine's anti-corruption bodies. But Zelensky reversed his decision, and parliament is scheduled to cancel the controversial law tomorrow, Jul 31. The next MPC meeting is scheduled for Sep 11. As things stand now, the NBU is likely to again leave the key rate unchanged in September.