• 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: Jan 27-28, 2026
• Current policy rate: 15.00%
• EmergingMarketWatch forecast: Hold

The BCB's Monetary Policy Committee (Copom) began to prepare the ground to start a monetary easing cycle in the minutes for its Dec 9-10 meeting, in our view, but it has remained cautious about the timing of the first Selic rate cut, which we expect to take place only in March at the second meeting of 2026. After deciding to keep the Selic rate unchanged at 15.00% in December, the Copom said that monetary policy has been effective in controlling inflation and reaffirming the committee's commitment to its 3.00% target. As such, it stated that the ongoing strategy of maintaining interest rates at elevated levels for a prolonged period is appropriate to ensure inflation convergence to the target. Despite noting improvements in inflation dynamics and an economic slowdown, the committee said the scenario still presents adverse inflation vectors and requires a restrictive policy for a prolonged period, but offered no explicit guidance on the timing of the easing cycle, thus supporting our expectations for another hold at the nearest sitting in January.

The committee highlighted the continued moderation in economic activity, particularly the decline in household consumption in Q3, and for the first time pointed to early signs of cooling in the labor market, although it noted its resilience. The GDP proxy for October posted a 0.2% m/m decline, which came in below the consensus expectation for a slight 0.1% increase, reflecting a broad-based decline across sectors except agriculture, which continued to expand amid this year's record harvest. Economic activity in October also showed mixed signals, with stronger-than-expected retail sales growth alongside a faster slowdown in services activity. Against this backdrop of mixed indicators, the Copom reinforced the need for demand to cool to ensure the convergence of inflation to the target.

The Copom also said monetary policy has been effective in improving inflation dynamics while also noting that a more appreciated exchange rate and a more benign commodity price environment contributed to easing price pressures. It added that services inflation has also moderated, though it remains resilient. Despite this more benign backdrop, the committee said the inflation outlook remains adverse and inflation continues to be pressured by demand, justifying the maintenance of a restrictive stance for longer. Regarding inflation expectations, the Copom acknowledged the improvement but stressed that they remain above target across all time horizons, which is a common concern for all of its members.

On the external front, the Copom noted a reduction in uncertainty, driven by progress in trade negotiations and the end of the US government shutdown. Nevertheless, it said uncertainties remain elevated and continue to require caution in the conduct of monetary policy.

Overall, the Copom showed confidence that its restrictive monetary policy has been effective in controlling inflation and strengthening agents' confidence, helping to reduce disinflation costs. Notably, the BCB mentioned for the first time since the start of the economic slowdown an apparent cooling of the labor market, which, in our view, begins to prepare the ground for the easing cycle. While the outlook continues to improve, the first rate cut is likely to occur only at the Mar 17-18 meeting, the second after the January meeting, as the Copom is likely to remain cautious amid persistent external and domestic uncertainties stemming from fiscal policy and risks related to the 2026 elections (such as FX pass-through to inflation), thus prompting another Selic hold in January.

• Next MPC meeting: Feb 5, 2026
• Current policy rate: 3.50%
• EmergingMarketWatch forecast: hold

Rationale: The CNB remained cautious after it kept the policy rate at 3.50% yet again at its MPC meeting in December. The decision was unanimous once again, even in the absence of Eva Zamrazilova, who is one of the biggest hawks on this board. While the outlook is now considered moderate, rather than strongly inflationary, the language of the post-meeting statement doesn't give any dovish notes. Quite the contrary, the CNB board remains entrenched in its current position, preferring to see a noticeable deceleration in core inflation before it feels it can act.

Core inflation has been increasingly singled out as the indicator to watch, including by CNB governor Ales Michl, who said the cautious stance would remain in place until core inflation is near the 2% target. The CNB board is currently braced for any effects that global uncertainty may unleash. Even though expectations are that headline CPI inflation will near, and possibly fall under the 2% target in 2026, it is anticipated to pick up again in 2027, which justifies the current CNB stance. In fact, it even implies that interest rates may remain stable quite longer than currently anticipated. Recent economic data has been supportive of this stance, as service provider prices retain their robust growth, the labour market hasn't loosened enough, and wage growth pressure is still solid. Where uncertainty comes is mostly towards manufacturing, which, we believe, may witness a more difficult year than this one.

The elephant in the room is fiscal policy, which the CNB board has declined to comment on, at least for now. It appears increasingly likely that there will be some fiscal loosening as early as in 2026, based on recent remarks of FinMin Alena Schillerova. Appetite for stronger spending is growing, and the fiscal commitments made by the new ruling coalition are considerable. This is likely one of the unspoken reasons why the CNB board remains so cautious, even if risks to economic growth are on the downside in 2026.

This is why we continue to expect that interest rates will remain stable throughout H1 2026, but that there might be room for some monetary easing in Q3. One reason could be energy prices, which the new government will reduce, both for households and business. It may prove insufficient if external demand takes a plunge, but it may provide some relief to supply side prices. On the other hand, depending on how large fiscal loosening is, the state could easily erase any favourable effects from lower energy prices, which makes the situation so uncertain. This is why we remain fairly confident about stable interest rates in H1 2026, but not so much about H2.

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Further Reading:

CNB board statement from latest MPC meeting, Dec 18, 2025

Post-meeting press conference, Dec 18, 2025 (in Czech)

Q&A after the latest MPC meeting, Dec 18, 2025

Minutes from the latest MPC meeting, Nov 6, 2025

Monetary Policy Report, November 2025

Macroeconomic forecast, November 2025

Meeting with analysts, Nov 7, 2025

CNB board profile

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

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

• Next MPC meeting: December 25, 2025
• Current policy rate: 21.5%
• EmergingMarketWatch forecast: 20.0% - 20.5%

The MPC will hold its next interest rate meeting on Dec 25 and we expect that the committee will deliver a 100bps rate cut after holding the rates in October and November. This potential cut - which will bring the cumulative cut since April to 725bps - will reflect the favourable inflation print from November, the appreciation of the pound, and the fairly elevated real interest rates that leave room for another cut without jeopardizing the disinflation trend that is expected to continue next year. November urban inflation came in at 12.3% y/y, beating the market's expectation of a 13.1% y/y figure, and slowing from a 12.5% y/y in October. The surprisingly favourable outcome reflects slowing food inflation, which offset the impact of the 13% fuel price hike and rising housing rents. There are underlining inflationary pressures, stemming from high M2 growth and supply line disruptions, yet we think the MPC will resume the monetary easing cycle this month.

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

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Headline inflation is expected to moderate further in 2026, albeit at a slower pace. Inflation is expected to average 14% y/y in 2025 before moderating to 10-12% in 2026 and GDP growth is expected to reach its full potential soon. The central bank has set an annual inflation target of 7% +/-2pps by the end of 2026 and we think the MPC may deliver a few more rate cuts next year.

Monetary Policy Committee Statement

Monetary Policy Review

Monetary Policy Committee Meeting Schedule

• Next MPC meeting: Jan 27, 2026
• Current policy rate: 6.50%
• EmergingMarketWatch forecast: Hold
• Rationale: NBH changes policy guidance, rate cuts to depend on incoming data

The monetary policy entered a new phase as of December as the MPC held the policy rate at 6.50% but revised the policy guidance in the direction of rate cuts. The previous guidance had been firm that no rate cuts were expected in the foreseeable future, while the current guidance loosened this stance and indicated that rate decisions will be taken on a month-by-month basis. This clearly opened the door to rate cuts, while the other change in the policy guidance indicated that the prospective rate cuts will be decided on an ad-hoc basis depending on the incoming data. Financial market stability and inflation developments will be the key indicators, which will shape monetary policy decisions, the MPC indicated. Rate loosening will be therefore dependent on the stability of the forint exchange rate and on favourable inflation readings in the beginning of 2026, we think. The NBH has consistently emphasised that it viewed the monthly repricings in the beginning of each year as crucial for the inflation outlook for the respective year, so moderate monthly changes in Jan-Feb could be conducive for monetary loosening, we expect. For this reason, however, we think the MPC will not cut immediately in the next months as it would like to first see the actual pricing behaviour in the first months of 2026. Inflation data for Jan-Feb will be available in March, so we believe that the MPC could opt for a rate cut in March at the earliest.

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The MPC maintained the other important elements of the monetary policy guidance in its December rate decision. Monetary policy will be based on a cautious and patient approach due to persistent risks for the inflationary outlook, it said. It further reiterated that it will continue to target a positive real interest rate for the sake of safeguarding financial market stability and for the sake of anchoring inflation expectations towards the 3.0% mid-term inflation target. Household inflation expectations have stagnated in the past months and have remained considerably above the inflation target, the MPC observed, in our opinion admitting that anchoring inflation expectations will be a key challenge for monetary policy in the short- to medium term. We expect that the prospective policy rate cut would not exceed the 25bps step, judging by the MPC insistence on following a cautious and patient policy approach.

The rate decision from December was based on the updated NBH forecasts from its Q4 Inflation Report. The abridged forecasts showed a downward revision of the inflation outlook for 2025 and 2026, while the inflation projection for 2027 was revised up compared to the previous forecast from September. The NBH also pushed back the expected timing of achieving the inflation target from early 2027 to H2/2027. The revision of the expected inflation path was likely due to updated assumptions, regarding the expiration of the price restrictions, we believe. The government extended the expiry deadline for the restrictions by three months till end-Feb 2026, which was probably the new assumption behind the NBH inflation forecasts. The expected inflation pattern is likely to change further as we expect that the restrictions will not be lifted before the parliamentary elections in the spring of 2026. The impact of the price restrictions carry significant uncertainty to the inflation outlook, along with pricing behaviour in early 2026, NBH governor Mihaly Varga underlined on the background discussion following the rate decision in December. Varga explained that the uncertainty of the margin cap could be related to the corporate adjustment to the restrictions, arguing that such an adjustment, including cross-pricing, could be increasingly expected to take place the longer the restrictions remain in place. At the same time, Varga pointed to an improving trend in underlying inflation, noting that monthly price changes had moderated in the last months of 2025. The forint appreciation and a more benign commodity price environment supported the improvement in the underlying inflation, he said.

Post-meeting MPC statement from December rate-setting meeting

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

Minutes from November MPC rate meeting

Inflation Report - Q3/2025

MPC meeting calendar 2026

• Next MPC Meeting: 2-5 February 2026
• Current Policy Rate: 5.25%
• Last Policy Action: 25 bps cut (December 2025)
• Our Base Case: Hold (No Change)

The RBI will enter the February policy meeting with ample policy space but limited urgency to act. The December rate cut has already delivered incremental accommodation at a time when inflation is exceptionally low and growth momentum remains firmly above trend. With real rates deeply positive, financial conditions loose, and fiscal policy turning supportive via GST 2.0 and tax relief, the marginal benefits of another near-term cut are diminishing rapidly. From a credibility and sequencing perspective, the RBI is better served by pausing, assessing transmission, and preserving optionality rather than accelerating easing into an economy that is neither demand-starved nor financially constrained. A hold in February is therefore not a signal of policy conservatism, but a deliberate calibration choice.

Inflation Dynamics

India's disinflation cycle has been sharper and more persistent than anticipated, materially undershooting both market expectations and the RBI's own projections. Headline CPI fell to a record low of 0.25% y/y in October 2025, before edging up modestly to 0.71% in November. But, inflation remains far below the 4% midpoint of the RBI's target band. Food prices were outright negative in October, driven by vegetables, pulses, and edible oils. Core pressures have also eased, reflecting weak input costs and benign demand-side inflation.

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The rollout of GST 2.0, effective September 22, 2025, has reinforced this trend. The simplified dual-rate structure (5% and 18%), combined with a higher 40% slab for luxury and sin goods, has lowered the effective tax burden on a broad basket of essentials, creating a one-off but meaningful price-level adjustment. This is mirrored in wholesale prices, with WPI inflation still negative at −1.21% in October, signalling broad-based softness in upstream costs. However, the policy-relevant point is that inflation has likely bottomed. As base effects fade, food prices normalise, and domestic demand firms, CPI is expected to rotate gradually higher through FY26, converging toward (but not overshooting) the 4% target.

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With inflation expected to rise from extreme lows rather than fall further, the case for front-loading additional easing in February is weak. The RBI can afford patience without jeopardising its growth mandate.

Economic Growth

India's growth backdrop remains one of relative strength within the global macro landscape. India's economy delivered a strong upside surprise in the July-September quarter (Q2) of FY26, expanding 8.2% y/y and marking the fastest growth in six quarters. This outcome underscores a resilient domestic economy navigating tariff-related uncertainty and subdued global conditions with considerable strength. Real GDP rose to INR 48.6tn in Q2, while nominal GDP increased 8.7% to INR 85.3tn. A combination of strong sectoral activity, a favourable statistical base, and exceptionally soft inflation helped lift real growth - a deflator effect that analysts had widely anticipated but not to this magnitude. On the consumption side, auto retail sales surged to a record 4.02 million units in October, a 40.5% y/y increase driven by the extended festive season, GST relief, and a visible pickup in rural demand. Importantly, the government's fiscal measures - GST rationalisation and targeted direct-tax relief - are set to support household purchasing power into H2 FY26, providing an additional buffer against global headwinds. Growth is not running below potential or signalling stress. Monetary policy does not need to "rescue" activity, allowing the MPC to pause without risking a slowdown, in our view.

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External and Financial Conditions

India's external position continues to provide strategic policy flexibility. India's external balances improved noticeably in the Q2-FY26, with the current account deficit (CAD) easing to USD 12.3 bn (1.3% of GDP) from USD 20.8 bn (2.2% of GDP) a year earlier. Preliminary balance of payments data show that the narrowing was driven by stronger services exports and robust remittance inflows, even as goods trade remained broadly stable. FX reserves remain substantial at around USD 690 bn, equivalent to nearly 11 months of import cover.

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While the rupee has faced depreciation pressure amid global risk aversion and EM outflows, it has remained broadly range-bound, aided by RBI intervention and strong external buffers. Domestic liquidity conditions are still ample following earlier CRR cuts and sustained government spending, with overnight rates anchored near the lower bound of the policy corridor.

Outlook

Having delivered a pre-emptive 25 bps cut in December, the RBI is now in assessment mode. The MPC is unlikely to signal the start of a fresh easing cycle and will instead emphasise flexibility, data dependence, and financial-stability considerations. A hold at 5.25% in February allows the RBI to evaluate transmission of earlier cuts, monitor inflation as it moves off record lows and assess global risks, including higher US tariffs and financial-market volatility

Our view is that the repo rate remains unchanged through at least mid-2026. Risks are skewed toward only shallow additional easing, contingent on a meaningful growth disappointment or inflation remaining anchored near 1%-1.5% for longer than currently envisaged.

• Next policy meeting: Dec 16-17
• Current policy rate: 4.75%
• Our forecast: Hold
• Last decision: Hold (Nov 18-19)
• Rationale: BI pauses monetary concerns on rupiah depreciation, CPI inflation also gains pace

Bank Indonesia cut the key rate by 75bps cumulatively Jul-Sep, before pausing the monetary easing cycle in Oct-Nov. This has brought total rate cuts to five (125bps) since the beginning of the year. The central bank justified the rate cuts with the need to support GDP growth in a low-inflation environment, as the rupiah stabilised against the dollar in the period. However, the last two hold decisions came on the backdrop of a depreciating rupiah, which brought to a temporary halt the monetary easing aimed at stimulating economic growth.

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So far, the central bank has become more and more dovish in light of the low inflation and economic growth slowdown. Moreover, CPI inflation remains within the central bank's 2.5+/-1% target band, although it accelerated in the last three months, surpassing the midpoint of the target range. Still, inflationary expectations remain firmly anchored to the central bank's target.

We should also note that the new FinMin, Purbaya Yudhi Sadewa, criticised the central bank for being too hawkish and late with rate cuts to stimulate economic growth. The FinMin advised that the key rate should be 1pp higher than inflation, which suggests he sees it at 3.5-4.0% in the long term. As a result, we think BI will resume monetary easing once the rupiah stabilises, possibly in January.

GDP growth

GDP growth eased slightly to 5.04% y/y in Q3 from 5.12% y/y in Q2. Investment and private consumption were the main factors behind the slowdown, while higher public spending largely offset their impact. The BI has maintained its GDP growth forecast at 4.6-5.4%, but said economic growth will be slightly above the midpoint, while most IFIs and rating agencies have their forecasts even lower at 4.7-4.9% in 2025.

We should note that the government has taken steps to support economic growth in H2. These include two stimulus packages worth IDR 43tn combined to be disbursed in Q4, mostly December, as well as the placement of IDR 200tn government funds from the surplus budget balance (previously kept with the central bank) into commercial banks in a bid to boost lending.

Exchange rate stability

After the BI started easing monetary policy, the rupiah reversed some of the gains made earlier this year. As a result, its YTD depreciation is about 3.0%, with the exchange rate now back into the USD/IDR 16,600-16,800 range in November.

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

Moreover, the Fed rate cuts have given Bank Indonesia further confidence to slash the key rate as pressure on the rupiah has eased, despite that it remains one of the worst performing currencies in the region. However, the pace of Fed rate cuts might slow down, despite widespread market expectations for another 25bp rate cut, judging from the latest comments of Fed chair Jerome Powell.

Inflation environment

CPI inflation accelerated 2.86% y/y in October from 2.65% y/y in September from 2.31% y/y in August, thus edging up from the midpoint of the BI's 2.5+/-1% target band.

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

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

In his most recent statement, commenting on the possible rupiah redenomination, BI Governor Perry Warjiyo said the central bank is focused on maintaining stability and promoting GDP growth, without mentioning inflation at all.

Conclusion

Looking forward, we expect Bank Indonesia to keep the key rate on hold in December, possibly awaiting the Fed to take the lead and slash the Fed Funds rate first. In addition, it could focus on accelerating government debt purchases on the secondary market, liquidity provision and stimulating credit growth.

In fact, the recent monetary easing amidst the rising pressure from the government has also raised concerns about the central bank's independence, though it has countered those with the last two hold decisions.

On the other hand, there is a possibility, although lower in our view, that BI cuts the key rate by 25bps as soon as December, surprising markets once again as it did during the recent monetary policy easing cycle. We should note that if the Fed continues with the rate cuts due to the persistent low inflation in the US, coupled with the stagnating labour market, it may prompt other central banks to follow suit and reduce rates as well.

Further reading

Last MPC press release

Calendar of MPC meetings

• Next MPC meeting: December 18
• Current policy rate: 7.25%
• EmergingMarketWatch forecast: 25bps cut

We are confident the CB will be again cutting its Monetary Policy Rate (MPR) on Thursday. We fully expect the CB to bring a new 25bps cut, bringing down the policy rate to 7.00% and close the year with 300bps easing. The market agrees with our forecast, according to a unanimous forecast published by Reuters, quoting 29 experts, the CB's consensus poll, where 95% of the polled experts agree a cut is coming, and the poll published by the bank Citi, showing the bulk of the market anticipates a 25bps cut on Thursday.

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This expectation diverges from lingering inflationary pressure, but is in line with the dovish position assumed by the bulk of the board. CPI inflation disappointed again in November, with an acceleration of both core and non-core inflation. CPI inflation came at 3.80% y/y in November, the worst so far in H2, accelerating by 0.23pps m/m. More worryingly still, core inflation accelerated to 4.43% y/y in November, posting the worst result so far in the year, up by 0.15pps m/m and showing CPI inflation is in no path to converge to the CB's target in the foreseeable future. The core acceleration shows sharp pressure from non-food prices, up by 0.62pps m/m, which should instead show downward pressure because of the currency's strong position, while non-housing non-educational services showed upward pressure too, adding eight months above 5.00%.

The acceleration comes as new pressures pile up for early 2026: 1) President Claudia Sheinbaum announced a 13% increase of the minimum wage, 2) Congress approved the increase of taxes on sugary drinks, videogames and tobacco, and 3) Congress moved to raise tariffs on countries with which it lacks a free trade agreement. All three will have a relevant impact on inflation, in our view. Still, the latest 2026-end CPI inflation forecast by the market came at 3.88%, showing analysts do not expect worrying acceleration next year, even if they see inflation well off from the CB's punctual 3.00% target. Considering these factors, it'll be interesting to see if the CB finally revises up its 2026 CPI inflation projections on Thursday.

Moving beyond the December sitting, we expect the CB to pause the easing cycle. In our view, the dovish consensus of the Monetary Policy Council (MPC) is cracking. Although four of five board members retook a dovish discourse in their quarterly report presentation, we believe this is the board closing lines to defend the credibility of its projections rather than any forward guidance. We expect this Thursday's forward guidance to be crucial, with the MPC saying it's willing to take a more wait-and-see approach in early 2026.

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We expect to see a divided board in early 2026. We expect the more dovish board members to continue highlighting weak growth projections and the stability of inflation vis a vis the historic standard. However, we expect the other end of the board to focus on lingering core inflation, calling for caution before resuming the easing cycle. However, there is a bit of uncertainty about how the board will be divided in this debate. While we are confident that both Governor Victoria Rodríguez and Deputy Governor Omar Mejía will remain on the dovish side of the board, and we are confident Deputy Governor Jonathan Heath will stand on the hawkish side, there is uncertainty about the position of deputy governors Galia Borja and José Gabriel Cuadra. We currently expect both to take a more hawkish position in the next scheduled sitting, to be held in February. However, any comment by these board members will be crucial to anticipate the chances of a pause taking effect since February. Thus, the December sitting's minute, to be published on January 8, will be crucial to assess the MPC's stance towards the February sitting.

We expect Thursday's cut to come from a 4 to 1 vote, with Deputy Governor Heath remaining the lone opposition to the ongoing easing cycle. It won't be too surprising if this come comes from a 3-2 majority, which would strengthen our expectation of a pause ahead.

In our view, a wait and see approach in early 2026 makes sense, particularly because of lingering inflationary pressures and new pressures on the horizon. Dovish tendencies dominating the CB keep the door open to further monetary easing in 2026, in our view. We expect 2026 easing to be of 50bps, at most, anticipating lingering inflationary pressures and new ones described above. Still, we expect any easing to come after Q1.

Overall, we are confident the CB will cut its policy rate by 25bps in December, bringing down the policy rate to 7.00%. We expect further easing in 2026. However, we expect a pause to the easing cycle since the first 2026 sitting, considering a less dovish tone by the CB's board. The latest minute shows a significant change in tone from a very dovish board; however, the tone of the December sitting will be crucial to assess how much easing the CB will end up favoring through 2026. Given the change in tone, we do not expect any easing in Q1.

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

The MPC is widely expected to cut the monetary policy rate when they meet next week on 24 and 25 November. October's inflation rate of 16.05% marks seven consecutive months of slowing inflation and the lowest rate since March 2022. As in September, the slowing in October's headline rate was largely driven by a significant drop in food inflation. Food inflation slowed to 13.1% y/y, from 16.9% y/y in September. Imported food inflation moderated to 9.6% y/y, compared to 12.9% y/y in the prior month. The decline in inflation comes after the MPC cut the monetary policy rate by 50bps to 27% in September. Financial experts expect inflation to continue its downward trend in the coming months, supported by stronger macroeconomic fundamentals, easing food prices and a more stable energy environment. The improving economic environment has boosted market confidence. In October, Fitch affirmed Nigeria's 'B' rating with a stable outlook, while S&P maintained its 'B-' rating but upgraded the outlook to positive in November. We also anticipate continued stability and a downward trend in inflation into the rest of 2025. These expectations could lead to a cut in the MPR (by 100-150bps) at the next MPC meeting.

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This week, CBN governor Olayemi Cardoso reported that Nigeria's foreign reserves have risen to USD 46.7bn as of November 14. This is the highest level in seven years. The governor credited the increase to stronger investor confidence and improved oil earnings. He said Nigeria's recent removal from the FATF Grey List has further raised credibility in global financial systems and boosted prospects for trade finance and foreign investment. Despite these advances, Cardoso stressed that Nigeria still faces significant challenges which include commodity-price volatility and long-standing structural imbalances. He revealed that the CBN will focus on deepening analytical capacity, upgrading modelling tools and expanding the use of big data as it transitions toward a full inflation-targeting regime.

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Last week, the CBN announced it is partnering with the ministry of finance on the new Dis-Inflation and Growth Acceleration Strategy (DGAS), a framework integrating fiscal and monetary policies to boost GDP growth above 7% and reduce inflation to single digits. DGAS aims to mobilize capital and establish Special Industrial Economic Zones. This framework is in line with persistent calls from experts throughout the year for Nigeria to strengthen coordination between fiscal and monetary policies.

Monetary Policy Committee Statement

Monetary Policy Committee Meeting Schedule

• Next policy meeting: Jan 26, 2026
• Current policy rate: 10.50%
• Last decision: Cut by 50bps (Dec 15)
• Our forecast: Hold
• Rationale: with domestic demand shows sustained recovery and persistent inflation risks, SBP is likely to stand pat to keep real rates adequately positive

At its Dec. 15 meeting, the State Bank of Pakistan cut the policy rate by 50bps to 10.50%. The decision surprised markets, as all 12 economists polled by Reuters and 40 of 42 analysts surveyed by Bloomberg had expected no rate cut, citing inflation risks. The central bank acknowledged these risks but said its inflation outlook remained broadly unchanged, supported by benign global commodity prices and anchored inflation expectations. It added that policy space was therefore available to reduce the key rate to support sustainable economic growth.

It is highly likely that the rate cut was tacitly approved by the IMF. In its latest staff report, released last week following the completion of the second review of the Extended Fund Facility, the lender urged an "appropriately tight" monetary policy while noting that real interest rates were "relatively high". In our view, the language may have been interpreted by the SBP as a signal that limited policy easing was permissible.

We believe the latest rate cut is a one-off move rather than the start of a renewed easing cycle. The IMF projects inflation at 8%-10% in the near term due to higher food prices and adverse base effects. With both the Fund and the SBP stressing the need to keep real interest rates adequately positive, the policy rate is likely to be kept unchanged until at least the second half of 2026.

Inflation environment

CPI inflation edged down to 6.1% y/y in November from a one-year high of 6.2% in October. The slight moderation was mainly driven by a decline in prices of perishable food items, particularly tomatoes. Nonetheless, the prolonged closure of the Afghan border - which has disrupted supplies of mainly fresh fruits, vegetables and coal - along with higher gas prices and elevated jewellery prices amid a rally in global gold markets kept the upward pressure on the headline figure. On a positive note, core inflation eased to a multiyear low of 6.6% y/y in urban areas.

Inflation has remained within the SBP's 5%-7% target range since September. However, the SBP reiterated that inflation is expected to exceed this range towards the end of FY26 due to unfriendly base effect, before reverting to the target range in FY27.

The SBP completely dropped any mention of the inflationary impact of recent floods from its commentary, suggesting it is not overly concerned about crop damages caused by the floods. This is in line with its earlier assessment that the flooding's impact was less severe than anticipated.

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GDP growth

The SBP remained upbeat about the economic outlook, noting that economic activity continues to gain traction. Robust domestic demand, reflected in strong sales of automobiles, fertilizer and cement, and higher imports of machinery and intermediate goods, signals a positive outlook for industrial activity. Wheat production is also expected to surpass the target, driven by an increase in the area under cultivation and favourable input conditions, supporting a rebound in the agriculture sector. However, the ongoing challenging export environment poses some risks to the industrial outlook.

The central bank expected FY26 GDP growth to reach the upper half of its earlier projected range of 3.25%-4.25%. The forecast is more optimistic than the IMF's projection of 3.2%. In FY25, the economy expanded 3.0%.

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External sector

The SBP maintained its current account deficit forecast at 0-1% of GDP in FY26 as resilient workers' remittances are expected to offset the increase in goods trade deficit. In the first five months (Jul-Nov), the deficit stood at USD 812mn. In FY25, the current account recorded a surplus of 0.5% of GDP.

Despite the small current account deficit and tepid net financial inflows, foreign exchange reserves are expected to trend upward, supported by the SBP's forex purchases and IMF disbursements. In a post-policy press conference, SBP governor Jameel Ahmad said that the SBP stepped up forex purchases from the interbank market during Sept-Nov after muted buying in the first two months of the fiscal year. The central bank noted that reserves have crossed the Dec 2025 target of USD 15.5bn and are likely to reach USD 17.8bn by June 2026.

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Conclusion

The SBP's 50bps cut lowered the policy rate to its lowest since March 2022. The surprise move suggests that growth considerations outweighed concerns over inflation. However, there is limited scope for further rate cuts, given the potential risks to external sector stability. We expect the central bank to hold its key rate steady until at least the second half of 2026.

Further Readings

Previous policy rate decisions

SBP's The State of Pakistan's Economy report

Latest IMF staff report

• Next monetary policy meeting: Dec 11
• Current policy rate: 4.75%
• EmergingMarketWatch forecast: Cut by 25bps
• Rationale: GDP for Q3; CPI for October; depreciation of the peso

We still think that BSP's Monetary Board (MB) is likely to reduce the policy interest rate by 25bps at its next meeting on Dec 11, the sixth and final one for 2025. Last month, the MB decided to reduce the central bank's Target Reverse Repurchase (RRP) Rate by 25bps to 4.75%. The central bank also cut the overnight deposit and lending rates by 25bps to 4.25% and 5.25%, respectively.

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The main new argument supporting the expectation of continued monetary policy easing is the disappointing GDP data for Q3. The economic growth missed the consensus market forecasts by such a wide margin that we do not rule out a 50bp cut in December. However, we still consider a 25bp reduction the most likely scenario. Another relevant development is the depreciation of the peso against the US dollar. While it limits the space for monetary easing, we think that the need to support the domestic economy will be a stronger argument on Dec 11. Moreover, CPI inflation remained below the target range in October.

Inflation

The CPI rose by 1.7% y/y in October, registering the same annual growth rate as in September. The inflation target range is 2.0-4.0%. The CPI growth has been below the target band for eight consecutive months. The October CPI inflation was within BSP's month-ahead forecast range of 1.4-2.2% y/y. It was also slightly below consensus forecasts of 1.8%.

The CPI rose by 1.7% y/y in Jan-Oct. Annual core inflation was 2.5% in October, down from 2.6% in September. The seasonally adjusted CPI increased by 0.1% m/m in October, after rising by 0.1% m/m in September.

Economic growth

The GDP increased by 4.0% y/y in Q3, decelerating from 5.5% y/y growth in Q2. The latest reading was well below the 5.2% growth expected in Reuters and Bloomberg polls, as well as the 5.3% median forecast of a BusinessWorld poll. It is also the weakest growth since Q1 2021, when GDP fell by 3.8% y/y. In seasonally adjusted terms, the GDP increased by 0.4% q/q in Q3, after rising by 1.5% q/q in Q2.

The Philippine economy expanded by 5.0% y/y in Jan-Sep. The Philippine government targets GDP growth in the range of 5.5-6.5% this year.

LFS, lending growth

The unemployment rate was 3.8% in September, lower than 3.9% in August, but higher than 3.7% in Sep 2024, according to the results of the latest labour force survey (LFS). In the y/y comparison, the number of unemployed rose by 3.3% to 1.96mn in September. The number of employed fell by 0.5% y/y to 49.60mn. The labour force hence decreased by 0.4% y/y to 51.56mn.

Outstanding loans of universal and commercial banks, net of reverse repurchase (RRP) placements with the BSP, rose by 10.5% y/y at end-September, slowing down from 11.2% y/y growth at end-August. On a seasonally adjusted basis, loans increased by 0.3% m/m at end-September. Annual loan growth has been in the double digits for the 17th month in a row but has been slowing down for three consecutive months.

A BSP survey showed that most of the respondent banks maintained their overall credit standards in both the enterprise and household segments during Q3. Most of the respondents expect unchanged credit standards in Q4 as well. The diffusion index (DI) method indicated a net tightening of loan standards in both segments in Q3 and expected tightening in Q4.

Exchange rate

The peso is trading at USD/PHP 59.160 at the time of writing, which compares with USD/PHP 58.433 on Oct 9, the date of the latest MB meeting.

On Oct 28, the BSP said that it does not oppose a market-determined exchange rate in principle. When the BSP intervenes, it is primarily intended to mitigate inflationary exchange rate movements over time rather than to curb short-term volatility. The exchange rate was USD/PHP 59.103 on Oct 28 and USD/PHP 55.369 on May 9.

Further reading

Press release after Oct 2025 monetary policy action

Schedule of monetary policy meetings

Highlights of MB meetings on monetary policy

Monetary Policy Report

• Next MPC meeting: Jan 13-14, 2026
• Current policy rate: 4.00%
• EmergingMarketWatch forecast: 4.00%

Rationale: The Monetary Policy Council cut rates by 25bps at its December sitting and all members who likely backed that move quickly fell in line to underscore the council had agreed to take a pause in order to gauge the impact of the 175bps of cuts done in 2025 and to see what happens with the early price changes. Many MPC members have taken to the airwaves of late and it is rare for them to be this united, leaving no doubt that the council will hold at its January and February sittings. March is the first 'live' meeting but we think the council will most likely wait until the April sitting to move, with the caveat that much lower-than-expected inflation in early 2026 might still prompt an earlier move.

Most council members talk about bringing the real rate down to about 1pps. CPI inflation in November was 2.5% and a key rate of 4.00% would suggest there is at least 50bps more to go, with the council seemingly divided over whether to go by more or not. This does mean the council is likely to cut further, though there is some debate over the timing.

The MPC's early-year meetings are always influenced by the impact on of the stats office GUS's updating of the inflation basket. GUS will stop publishing flash inflation releases after the December publication and won't start again until its flash inflation publication for March to come in late March or early April [its FY calendar doesn't seem to be out yet]. The regular release of inflation data will come for December in mid-January, but the January inflation release in mid-February will be partial and preliminary. Then in mid-March, GUS will release its new inflation basket as well as the final prints for January and February. The NBP doesn't publish core inflation for January and February until mid-March as well.

This year, there is even more uncertainty since GUS will transition to the COICOP 2018 classification of household expenditures for CPI inflation from the COICOP one from the mid-March release of the updated inflation basket for 2026. The CPI and HICP for Poland have been calculated according to COICOP since 1999, with the European version, ECOICOP, in place since 2014. GUS has, according to PAP, not decided how the partial, preliminary January inflation release will be calculated, but is apparently leaning toward using the COICIP 2018 but with the 2025 weightings in place. PAP reported there is even a chance the January estimate would not be released.

Considering the avowed move to a "wait-and-see" stance is predicated on being data dependent, something NBP head Adam Glapinski stresses, it is hard to believe the MPC could cut rates without really knowing where inflation has gone in early 2026. However, there is a chance that inflation comes in well below expected. That and a very dovish update of the Inflation Report in March might be enough to trigger a 25-bp cut, but we imagine April is more likely since the data backdrop will be broader.

There is still some question over how far the MPC will go. A 25-bp cut seems assured, and it is seems likely the MPC will go down to 3.50%. But whether it goes further is harder to say and will depend on developments in Q1 and Q2 2026. If inflation is expected in the 2.0-2.5% range for a longer period, then that would strengthen the chance the key rate might hit 3.25%, but considering the fiscal deficit is likely to remain wide, there is much uncertainty, it seems likely the key rate will hit 3.50% and then stay there for a prolonged period and only go below if inflation is expected to go sub-2%.

MPC's post-sitting statements

Latest council minutes

Latest NBP inflation report (November 2025)

Most recent MPC voting results

Archived video of all MPC press conferences

• Next MPC meeting: Jan 22, 2025
• Current policy rate: 38.0%
• EmergingMarketWatch forecast: Cut by 150bps
• Rationale: Year-end inflation seasonality supports near-term cut, but weak credibility, food risks, firm demand, and expectations gap keep 2026 disinflation challenging

We expect the CBT to pursue measured easing at the upcoming MPC meeting, most likely through a 150bps rate cut. We still view further accommodation as premature, given that 2026 will likely prove demanding for the CBT to reach its 16% year-end inflation target. That said, the Bank's credibility has not been strong over recent years, and market pricing remains materially above the CBT's 2026 target. This signalled a clear gap between the announced disinflation path and what investors view as feasible even though historically the latter group stood on the optimistic side. In that context, we see a high likelihood of at least one upward revision to the 2026 target in forthcoming inflation reports, either to align the target with the prevailing expectations backdrop or to preserve internal consistency between forecasts, assumptions, and the policy stance. We think the CBT recognises this trade-off and is already calibrating policy accordingly.

Following November's soft inflation print, we expect a similar pattern in December, which should provide operational cover for a cut. Note that, this is not unique to 2025. Figure 1 shows CPI inflation in m/m terms since 2023, with the Oct-Dec window shaded to isolate the year-end period. The profile is consistent, in our view: inflation tends to cool into year-end, with Q4 typically running below the late-summer/early-autumn pace and often easing further into the final prints. The shaded window makes this comparison immediate and helps separate intra-year volatility from the recurring year-end cooling pattern.

Figure 1. CPI inflation (%, m/m)

To quantify this, we used quarterly averages of m/m CPI inflation in Figure 2. For each year, we calculated average monthly inflation in Q1 (Jan-Mar), Q3 (Jul-Sep), and Q4 (Oct-Dec), then constructed two slowdown measures in percentage points: Q3 average minus Q4 average and Q1 average minus Q4 average. A positive value means Q4 ran below the comparator quarter on an average basis, which supports a genuine year-end deceleration rather than a single-month effect. Across the available years in our sample, both measures remain positive, pointing to a persistent tendency for softer inflation in Q4 relative to both mid-year momentum (Q3) and the early-year pace (Q1).

Figure 2. CPI inflation- year-end deceleration metrics (pps)

Looking ahead, we think 2026 will still pose a tougher disinflation challenge, even if the revised Turkstat series may offer some near-term relief in the optics. Note that this is something we cannot make sure for the time being, and we will see when the new data is started to release. However, we know that food prices remain a key risk - agricultural output fell by 12.7% y/y in Q3 due to drought and frost, and that shock should feed into food inflation and household expectations, which often anchor on food and rent. If expectations deteriorate, the disinflation effort becomes materially harder, we assess. Drought conditions persist and dam levels remain uncomfortably low, keeping supply-side risks elevated, we note.

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Underlying demand also looks firm. GDP excluding agriculture continues to signal solid momentum, consistent with demand-pull pressure in inflation. In addition, our estimates place households under-the-mattress gold holdings near USD 440bn. This stock can provide a discretionary liquidity buffer for consumption and investment and may help explain why conventional indicators have repeatedly understated private demand strength, in our view.

Overall, the case for a near-term cut rests on two pillars: a softer near-term inflation backdrop, reinforced by a recurring year-end cooling pattern in m/m CPI, and a policy framework that likely reflects diminished target credibility and a high probability of upward revisions to the 2026 path. At the same time, we see the 2026 disinflation challenge as structurally more demanding. Supply-side food risks look skewed to the upside amid drought stress, demand conditions remain firmer than standard indicators imply and market pricing continues to signal an expectations gap versus the CBT's targets. Taken together, these dynamics leave room for measured easing in the very near term, but they also raise the risk that the easing cycle runs into sticky expectations and renewed inflation pressure faster than the CBT's baseline narrative suggests, we caution.

Summary of December rate-setting meeting(to be released on Dec 18)

MPC rate decision in December

Quarterly Inflation Report for Q4

Monetary policy strategy for 2025

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

The BCCh's Monetary Policy Council is expected to cut its monetary policy rate by 25bps to 4.50% in its next sitting scheduled for Dec 16, in what could be the second-to-last cut in an easing cycle that began in 2023. The central bank's monthly poll of economists for December had 85% of respondents forecasting a 25bps cut, while the other 15% expected a hold at 4.75%. A similar poll conducted among financial sector traders had 82% for a cut and 18% for a hold.

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The last piece of official guidance wasn't particularly strong in favor of a cut. The post-sitting statement for the Oct 28 rate decision was cautious and neutral, with the only guidance mentioning that there were still risks to inflation convergence, and that gathering more information was required before passing more cuts that pushed the monetary policy rate to its neutral range (3.50%-4.50%). The minutes for the sitting revealed a little more. The board members said forthcoming GDP and CPI releases would provide key new information ahead of the December policy sitting. One member gave a hawkish message, saying inflationary pressures had not disappeared, and noting that the current monetary policy rate did not seem restrictive if compared to current above-target inflation rates. Two other members had a dovish reply, saying recent data on wages, the exchange rate, and activity suggested inflation risks had moderated significantly.

The release of CPI data that followed the October monetary policy sitting is what tilted the consensus toward a big majority expecting a cut. At the time of the October sitting, CPI inflation was at 4.4% y/y and core inflation at 3.9% y/y. The next release was a big surprise to the downside, leaving both headline and core inflation at 3.4% y/y. This was a meaningful step toward the 3.0% monetary policy target. Moreover, given the consensus CPI inflation forecasts for December and January, the consensus sees CPI inflation returning to the 3.0% target in two months.

We believe this scenario leaves both the hold and cut options as plausible for Dec 16, and that it will ultimately be a tactical decision. The consensus is that the recent inflation surprise to the downside, expectations that annual inflation will complete the convergence to 3.0% in two months, and an economy that grows without relevant output gaps leave enough space for a 25bps cut that basically maintains the real monetary policy rate unchanged.

The argument for a hold would be that after five years of above-target inflation, the MPC should wait until inflation stays at this level or closer to 3.0% for a few more months before passing the cut that pushes the monetary policy rate to the neutral range. The CPI readings for December and January are usually hard to forecast accurately, there are no clear output gap risks, and the data suggests that the current monetary policy rate is not restrictive. Thus, the MPC should not feel rushed to cut the second that space for a cut seems to have opened up.

We don't feel strongly either way for this next rate decision. The consensus is that a 25bps cut is a fairly safe proposition, but we believe it is closer to a 50-50. If the MPC were to hold, we would expect firm guidance of a cut to come in Q1.

• Next policy meeting: Dec 19
• Current policy rate: 9.25%
• Last decision: Oct 31 (Hold)
• EmergingMarketWatch forecast: Hold or hike by 25 bps
• Rationale: BanRep is poised to keep rates unchanged on Fri., though a surprise December hike cannot be fully ruled out as sticky core inflation and a likely double‑digit minimum wage increase test the board's patience.

BanRep is likely to hold rates this Friday, with a January hike remaining on the table as sticky core inflation and a likely double-digit minimum wage increase for 2026 test the bank's patience. Pressure to raise in December subsided after headline CPI eased to 5.3% y/y in November from 5.5% in October. However, core inflation remains sticky, so a surprise December hike cannot be fully ruled out. Fiscal expansion has become a secondary concern after September-October debt swaps sharply lowered interest costs, allowing the Finance Ministry to project a narrower 6.2% deficit for 2025, below June's 7.1% forecast and market estimates near 7.5-8%.

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Inflation expectations have slightly improved since November, according to the latest BanRep survey of local economists. They now expect CPI inflation to slow to 5.19% y/y in December, down from 5.33% in November, though the 12-month forecast worsened to 4.59% y/y from 4.47% last month. The economists surveyed still do not expect CPI to reach the 3% target over the next five months, underscoring the uncertainty in inflation forecasts ahead and the risk that inflation expectations could further de-anchor.

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The stronger-than-unexpected 3.6% y/y Q3 growth print raised concerns for Governor Leonardo Villar, as the data showed growth remained heavily tilted toward the demand side, led by a widening trade gap, a double-digit rise in imports, stagnant exports, and robust government spending, deemed unsustainable ahead. Market commentators have speculated that liquidity from the debt operations in September-October may have been largely absorbed, likely supporting Q3 spending, and pointing to a Q4 slowdown.

As noted in our previous CBW, the hawkish majority we have identified with certainty (Villar, Mauricio Villamizar, Bibiana Taboada, and Olga Acosta), signaled that a hike was under consideration. However, many of those remarks came before the November CPI release, when they still expected inflation to rise further ahead. Villar and Villamizar both warned of renewed price pressures ahead of an inflationary minimum wage hike, but tripartite negotiations between the government, labor unions, and business groups failed to reach a consensus on Mon. With no accord, President Petro is expected to decree the increase unilaterally, and officials have suggested it could be a double-digit raise.

Based on the latest information, it seems the best course for BanRep is to wait and see whether any inflationary pressures persist into Q4, and whether the minimum wage news raises expected inflation. A 25bp hike in January remains highly likely, conditional on the board's assessment of wage passthrough to inflation expectations. As central government fiscal figures have been repeatedly revised downward due to lower interest expenses from debt swaps, fiscal dynamics remain uncertain. Without the fiscal rule in place, a failed tax reform, and Petro's threats to convene the 'economic emergency state', one might think the government's rising spending, amid weak revenues, would remain the status quo until August 2026. Whether the Board's hawkish majority finds the need to start tightening depends on whether inflation expectations worsen and on inflation proving sticky and stubborn to recede, especially for the core metric. For now, BanRep's message to markets is caution, not complacency, a stance that could turn hawkish fast if Petro decrees a double-digit wage rise.

• Current policy rate: 4.25%
• Next monetary policy meeting: Jan 5, 2026
• Expected decision: Hold

The MPC expectedly cut the policy rate by 25bps to 4.25% on Nov 24 but governor Yaron warned that uncertainties are still there and that the MPC will remain prudent in its decisions. He also said that the latest research division assumption for a policy rate of 3.75% in September 2026 is "definitely reasonable" and even if a revision is forthcoming, he did not expect any changes. Yaron said that the interest rate path must be gradual and should depend on demand not changing faster than the BoI think, supply constraints being reduced, and the fighting not being at high intensity. The latter means two rate cuts by September 2026, which will very much depend on inflation developments and will very likely be roughly evenly distributed in that period, we think. Thus, we expect the MPC to take an on-hold decision in its next meeting in early January sitting on the fence to see how the local economy reacts to the ceasefire and the start in the monetary easing.

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Inflation fell further by 0.1pps m/m to 2.4% y/y in November and was within the 1-3% target range for the fourth month running. It was lower than expectations in November but it was significantly affected by the highly volatile flight tickets, which have made inflation predictability hard in the past months. The latest inflation expectations, one of the major considerations the MPC is looking at when deciding on the policy rate, pointed to continued moderation in the inflation environment and the latest forecasters' inflation expectations for the next one year fell to a low not seen since Jan 2022. The BoI said it expected inflation to increase by the end of the year and then start easing towards the middle point of the 1-3% target range. However, Adi Brender, a MPC member and the chief of the research department at the Bank of Israel, said that despite the expected fluctuations, inflation is to remain within the target range in the coming months. He also stated that there are factors that make it difficult inflation to decelerate further like the demands of the army to maintain a large number of reservists, which is affecting the labour market, and the still lower number of flights to/from the country compared to the period before the war. The BoI also said that geopolitical developments and their impact on economic activity, an increase in demand alongside supply constraints, and fiscal developments are risks that can lead to potential inflation acceleration. The governor explicitly noted that if the budget policy is expansionary to the extent that it leads to an increase in demand and acceleration in inflation, the MPC will need to address this issue. So far, the budget deficit is set at 3.9% of GDP in 2026, which is higher than the previously communicated 3.6%, which Yaron said was reasonable.

GDP growth rebounded in Q3, at much higher than expected 11.0% in saar terms (seasonally-adjusted annualised rate, revised down from 12.4% in the first estimate). The deviations of the GDP and the business product from their long-term trends moderated but apparently have not closed. The BoI assessed economic activity in Q4 as "lively" but not at the level of Q3 and pointed to the improvement in sentiments, the high capital raising, and the continued recovery in foreign trade. We note that high frequency indicators like credit card purchases and the economic activity index of the BoI confirm this assessment for now. However, the labour market remained tight and wages continued to increase. We note that the BoI has flagged the wage growth as one of the concerns regarding inflation developments. Yaron assured though that the current wage growth is not yet pushing inflation higher.

Board statements, press briefings, minutes from MPC meetings

Calendar of MPC meetings

Latest BoI macroeconomic forecasts

Monetary policy reports

Bank of Israel Law

The Monetary Committee

• Current policy rate: 18%
• Next monetary policy meeting: Jan 23
• Expected decision: hold

On Nov 28, the NBK kept the base rate on hold at 18%, which we expected. The bank highlighted softer price growth in services and the non-food segment. Monthly price growth dynamics have also been more favourable, supporting the decision. As a whole, the bank remains cautious of the persisting inflationary tendencies. The main pressures it sees stem from domestic demand trends, fiscal and quasi-fiscal stimuli, as well as the prolonged secondary effects of tariff hikes and fuel price liberalisation. Externally, global food prices and inflation dynamics in Russia are an ongoing concern.

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Given the balance of risk factors, the NBK revised its end-2025 inflation forecast from 11-12.5% to 12-13%. The end-2026 projection has also been raised from 9.5-11.5% to 9.5-12.5%. Apart from the pressures outlined above, the NBK is also wary of the likely volatility after the new tax code enters into force next year. Its outlook on short-term growth prospects has improved, with the annual GDP growth forecast for 2025 raised to 6-6.5% (from 5.5-6.5%). At the same time, next year's projection is lower at 3.5-4.5%.

In its official press release, the bank said it sees no scope for monetary easing in H1 2026. Conversely, it is prepared to deliver further rate hikes if inflation does not decelerate consistently. The NBK is still confident that its tight stance and the government's more conservative fiscal approach will facilitate disinflationary tendencies. Nevertheless, we would not be surprised to further tightening next year, though potentially after January, when the VAT hike's impact will be more evident.

• Next policy meeting: Jan 15
• Current policy stance: 2.50%
• Last decision: Nov 27 (Hold)
• Our forecast: Hold
• Rationale: BOK maintains easing stance, but rate cuts unlikely while real estate prices keep surging

The Bank of Korea will likely stay on hold in its upcoming meeting on Jan 15 as housing prices remain hot and the recent weakening of the Korean won has pushed CPI inflation higher to 2.4% y/y in 2.4% y/y in October and November. The BOK has stayed on hold for 4 consecutive meetings since July as it saw little room to cut rates amid the surge of housing prices in the second part of 2025. The BOK maintained an easing stance in its last meeting on Nov 27, but it changed its tone somewhat and said that both rate holds and rate cuts are possible going forward.

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BOK's board was divided in the meeting on Nov 27, with 3 out of 6 members seeing a possibility for a rate cut in the next 3 months. However, the number of members predicting a rate cut fell from to 3 from 4 in the previous October meeting. The more hawkish tone can be explained by the fact that BOK upgraded its growth forecast to 1.8% in 2026 and saw diminishing downside risks to growth due to the US trade deal.

BOK's governor Rhee Chang-yong said that despite the short period of time "multifaceted changes in economic conditions" have happened over the past month such as: (1) conclusion of US-Korea trade talks and easing of US-China trade tensions; (2) growth in exports and facility investment that exceeded expectations led by the semiconductor sector; (3) heightened increase of the exchange rate; (4) continued increase in housing prices. The economy is expected to grow by 1.8%, close to the potential growth rate of 2%, but both downside and upside risks to growth remain.

Housing prices, mortgage loan growth remain key factors to watch

Despite its continuing easing stance, the BOK is unlikely to cut rates while apartment price growth remains elevated. The central bank has highlighted multiple times in the past that it is unwilling to cut rates if this will fuel speculation about rising real estate prices. The latest data from the week ending Nov 24 showed a 0.18% w/w increase in apartment prices in Seoul which translates to around 10% annualized increase of prices. In our view, the current rate of housing price inflation remains too high and the BOK will be forced to stay on hold until the weekly inflation moderates further.

On the positive side, mortgage loan growth has moderated considerably in recent months and stood at just KRW 2.1tn in October. Furthermore, there are indications that local banks have tightened their lending standards further or have even cancelled mortgage loan applications altogether in the last 2 months of the year. Thus, the moderating mortgage loan growth remains conducive towards rate cuts on its own, but the current housing price inflation remains too high.

USD/KRW exchange rate to be closely monitored by BOK

The recent weakening of the BOK/KRW exchange rate is also likely to put brakes on BOK's easing plans. The BOK is likely to become very sensitive to the exchange rate going forward due to South Korea's pledge to invest USD 350bn over a period of at least 10 years into the US as part of the US-Korea trade deal. The annual investments into the US are likely to put additional pressure on the Korean won as the government will need to raise them from capital markets.

Recently, authorities have put extra attention to the situation in the FX market where foreign investment outflows of Korean residents, including the National Pension Service, have been blamed for the weakening won. The government is currently mulling over a new framework for NPS's hedging strategy that will help to stabilize the FX market. Considering the close coordination between financial authorities, the government and the BOK, we think that the BOK is unlikely to embark on rate cuts while authorities are actively mulling over FX market stabilization measures.

Growth surprised on the upside in Q3, but momentum seems to be easing in Q4

The growth situation has surprised on the upside in Q3 as GDP expanded by 1.3% q/q in Q3 at the fastest pace in 15 quarters thanks to a much-needed recovery of domestic demand. However, growth momentum seems to be softening in Q4, partially on the back of base effects, after industrial production fell by 8.1% y/y in October and Manufacturing PMI stayed below the 50pts mark in both October and November. However, consumer sentiment remained upbeat in November and export growth has remained robust buoyed by memory chip exports. As the economy closes the negative output gap, the odds are rising that the BOK may eventually abandon its easing stance and adopt a neutral stance or even start considering rate hikes.

Useful Links

Last MPC press release

Calendar of MPC meetings

Next policy meeting: 22 January, 2026

• Current policy rate: 2.75%
• Our forecast: Hold
• Last decision: Hold (November 6, 2025)
• Rationale: BNM is likely to extend rate pause after its July 25bps cut, as strong exports and robust domestic demand drive growth

We expect Bank Negara Malaysia to leave the overnight policy rate (OPR) unchanged at 2.75% in its first meeting of 2026, as the economy continues to show resilience, supported by the global technology upcycle. GDP growth accelerated to a one-year high in Q3 2025, and better-than-expected industrial output in October suggests that the momentum carried into the final quarter. Meanwhile, inflationary pressures remain broadly contained, reflecting limited spillover from the government's recent reform measures into broader prices. A stronger ringgit, which has outperformed its Asian peers for the second consecutive year, is providing additional comfort to the central bank to keep its policy rate unchanged.

Last month, BNM held the OPR for the second straight meeting, noting that the current monetary policy stance is appropriate and supportive of the economy amid price stability. The policy rate was last adjusted in July, with a 25bps cut, prompted by potential adverse impact of US tariffs, which also led the central bank to lower its 2025 GDP growth forecast to 4.0%-4.8%, from 4.5%-5.5%.

GDP growth

GDP growth accelerated to 5.2% y/y in Q3 2025 from 4.4% in the previous quarter. The stronger-than-expected expansion was driven by robust domestic demand, higher exports, and a rebound in mining activity. The momentum is likely to have continued into Q4, as indicated by solid manufacturing performance in October, particularly in export-oriented industries such as electrical and electronic (E&E) products.

Exports reached a record MYR 148.3bn in October, up 15.7% y/y, supported by strong demand for E&E products, while non-E&E shipments also expanded. These positive developments have prompted the government to express confidence that economic growth will reach the upper end of its 4.0%-4.8% forecast range this year.

BNM projects resilient domestic demand, supported by a firm labour market and robust investment activity, to continue to underpin growth into 2026. The easing of US-China trade tensions and Malaysia's trade deal with the US are expected to aid exports. However, the main downside risk stems from the Trump administration's proposed tariffs on semiconductors, given that the US is Malaysia's third-largest market for chips. The government projects the economy to expand between 4.0% and 4.5% in 2026.

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Inflation environment

CPI inflation eased to 1.3% y/y in October from a seven-month low of 1.5% y/y in September, driven by a softer gain in food prices and fall in the cost of transportation. Core inflation, however, edged up to a two-year high of 2.2% y/y, in part reflecting the impact of sales and services tax (SST) expansion into new categories.

Nonetheless, price pressures have been largely kept in check, with the headline figure averaging 1.4% in the first ten months of 2025, down from 1.8% in the same period last year. Inflation is likely to clock in at the lower end of BNM's 1.5%-2.3% projection for this year. The forecast is higher than the Finance Ministry's forecast range of 1.0%-2.0%.

BNM has maintained its favourable inflation forecast for 2026, expecting both CPI and core inflation to remain moderate, supported by subdued global commodity prices and absence of excessive demand pressures. It expects domestic policy reforms, including subsidy rationalisation and the expansion of the SST, to have only a minimal impact on inflation.

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Exchange rate

BNM's commentary on the ringgit's performance was missing in the previous two monetary policy statements, suggesting it was not a big factor in its decision-making. The central bank is likely taking comfort from the strengthening of the local currency, which has appreciated by 8.6% against the US dollar so far this year, making it Asia's top performer for the second year in a row. The ringgit traded at 4.0905 per dollar as of Dec 12, its lowest level since March 2021.

Positive growth prospects, sustained fiscal consolidation, and narrowing yield differential with the US Fed are likely to extend the ringgit's uptrend into 2026. The government expects USD/MYR exchange rate to fall below the 4.0 level over the next year on the back of sound domestic fundamentals. The pair last traded below the 4.0 level in June 2018.

Conclusion

With growth proving more resilient than previously anticipated, inflationary pressures broadly contained, and the ringgit strengthening, we expect BNM to keep the OPR steady in the near term - at least through mid-2026.

Further Readings

Previous OPR decisions

• Next MPC meeting: Jan 19, 2026
• 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 first MPC meeting in 2026, on Jan 19, and will very probably make no changes in Q1 2026. The inflation flattened above expectations, at 9.76% in November, while its subsequent moderation trend is seen very slow in the following three quarters and on a higher path than previously estimated.

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The central bank sees a more pronounced decline in inflation starting in H2 2026, supported by statistical base effects, which in turn increases the probability of rate cuts, in our view. Therefore, we believe that the prudent approach would be to hold on the key rate steady until disinflation becomes certain, particularly since the expiration of the natural gas price cap expires in March.

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

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

• Current policy rate: 16.5%
• Next monetary policy committee meeting: Dec 19
• Expected decision: 50-100bp cut

Ahead of the key rate decision this Friday, Dec 19, views among Russian analysts are almost evenly split between a cut to 16% and to 15.5%. We read the regulator's recent reports and comments as pointing to a more cautious approach to easing. At the same time, one-off factors early next year could prompt the CBR to make a larger cut now, thereby maintaining confidence among economic agents.

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Headline CPI inflation slowed to 6.64% y/y in November, with prices rising by 0.42% m/m. SAAR inflation as calculated by the central bank fell to 2.2% from 7.0%. However, core inflation components "remain elevated and do not yet show a clear downward trend", as the CBR itself noted in its trends bulletin last week. This can be read as a direct statement of the risks associated with easing. Rising inflation expectations also argue for keeping tight monetary conditions for longer and avoiding an "automatic" easing cycle to try to influence them with actual data. In early 2026, the effect of a higher VAT rate and other tax changes will become visible. While the direct impact is one-off, there is a risk of second-round effects through expectations, which surveys suggest are already emerging among firms. As a result, the CBR may prefer to wait until tax and tariff effects are fully visible, likely in Q1 2026, before considering more substantial easing.

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Tight monetary policy also supports a savings rate required for gradual cooling of consumer activity. To lock in current trends, including high savings alongside elevated expectations, restrictive conditions on demand from both monetary policy and the labor market need to be maintained. The labor market is becoming less overheated, which is disinflationary, but the still very low unemployment rate leaves little room for a sharp shift toward dovish policy. Another factor arguing for caution is the rebound in lending in November after October. Both corporate and retail lending picked up. We do not see rate cuts as the main driver. Household lending accelerated to 4% y/y in October, supported by subsidized mortgages, whose rules are also changing, and by auto loans ahead of expected price increases. Corporate lending growth strengthened due to lower budget payments and higher seasonal demand. Still, an overly soft decision would risk further acceleration in credit indicators.

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Fiscal policy adds to caution. Preliminary November budget data suggest that the December spending impulse, if in line with the plan, will be weaker than in the past two years. For the CBR, this, combined with sanctions constraints and slowing growth in the civilian economy, due to both supply limits and uneven but still weaker demand, would be clearly disinflationary. The budget has been one of the main drivers of growth and inflationary pressure. However, the CBR cannot be fully confident about this outlook. Based on past practice, it is therefore more likely to choose caution and preserve tightness rather than move decisively toward easing.

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Finally, we cannot rule out a political factor and related pressure. First, a press session with Putin will take place on the day of the meeting, which even led to changes in the usual CBR schedule. This may increase the demand for "good news". This argument is debatable, but the current governance style does not allow it to be fully dismissed. Second, external pressure is increasing. While we do not yet see direct risks from the president, as CBR's cautious policy helps free up additional resources for war-related sectors, other influential institutions may be working to soften CBR's hawkish stance.

Next MPC announcement: 29 January 2026

Current policy rate: 6.75%

EmergingMarketWatch forecast: 6.50%

The SARB's November meeting delivered the widely expected 25bps rate cut, lowering the repo rate to 6.75% in a unanimous decision in a signal for the broad agreement that the conditions for resuming the easing cycle had been credibly met. The decision also reflected the MPC's increased confidence in the disinflation process, supported by lower-than-expected inflation outcomes, a firmer rand, softer oil prices, and steadier domestic activity. Importantly, the November meeting marked a further consolidation of the SARB's shift to the 3.0% point target with a 1% tolerance band, now firmly embedded as the centre of the policy framework.

The MPC reduced both its near-term inflation and growth risks to balanced, reflecting a meaningful improvement in the macro-financial backdrop. The SARB revised headline inflation slightly lower to 3.3% for 2025 and 3.5% for 2026, while raising the 2025 growth forecast to 1.3% following stronger outcomes in Q2 and modest momentum into Q3. The structural shift to a lower point target is reshaping medium-term inflation dynamics. The SARB highlighted that the new framework is designed to anchor inflation expectations more firmly around 3%, influencing wage-setting, social-grant adjustments, and administered-price increases (with the notable exception of Eskom tariffs which continue to pose risks).

Inflation has continued to undershoot SARB expectations, reinforcing the view that disinflation is becoming more firmly entrenched. While the MPC anticipated a temporary year-end acceleration, we expect the pick-up in December to be more modest, landing closer to 3.5% y/y rather than the 3.8% central bank projection. This means that January inflation would remain close to the 3% target, even under moderate monthly increases, indicating the absence of meaningful underlying price pressures. Core inflation also remains contained and aligned with the new point target supported by the firmer rand into year-end. If inflation expectations continue to converge toward 3% as suggested by market-based indicators and analysts' forecasts the SARB will have greater confidence that the disinflation process is durable, strengthening the case for another 25bps cut at the January meeting.

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The unanimous vote for a cut in November, coupled with the SARB's emphasis on the improved balance of risks and the ongoing convergence of expectations, suggests a broadening comfort within the MPC that additional easing can be delivered, subject to data confirming a sustained disinflation path. We therefore expect the MPC to deliver a 25bps cut in January, lowering the repo rate to 6.50%. A further gradual easing cycle through 2026 remains likely delivering at least 50bps and consistent with the SARB's aim to align the policy stance with inflation settling sustainably at the point target over the forecast horizon.

Monetary Policy Committee Statement

Monetary Policy Committee Forecasts and Assumptions

Monetary Policy Review

• Next Policy Meeting: TBC
• Overnight Policy Rate (OPR): 7.75%
• Previous Decision: Hold (Nov 26)
• Our Forecast: Hold
• Rationale: Growth is broadening, inflation has turned positive, and IMF momentum remains intact, but subdued reserves and fragile external conditions warrant caution.

The Central Bank of Sri Lanka (CBSL) maintained the policy rate at 7.75% for a third consecutive meeting on Nov 26, opting to keep its monetary stance neutral as the effects of earlier easing continue to filter through the economy. Having cut rates by 250 basis points between March and May 2025, the CBSL has since pivoted to a watchful pause, balancing a firming growth outlook and low but rising inflation against weak reserve accretion and a modestly depreciating currency.

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The policy hold comes as key macro anchors remain steady. The IMF Executive Board is expected to approve Sri Lanka's fifth review under the USD 3bn Extended Fund Facility (EFF) on December 15, triggering a disbursement of USD 347mn. The staff-level agreement, finalised in October, affirmed Sri Lanka's reform traction and upward growth surprise. The IMF flagged continued fiscal discipline and a cautiously improving external position, but also noted the importance of protecting the vulnerable and accelerating structural reforms, including trade liberalisation and governance.

Inflation Outlook

Inflation has returned to positive territory after nearly a year of deflation. Colombo CPI rose 2.1% y/y in October, up from 1.5% in September, led by food inflation, which climbed to 3.5% y/y, while non-food prices also picked up to 1.4% y/y. Contribution to overall inflation came nearly equally from food (1.12%) and non-food (0.95%) categories, suggesting that the price gains are becoming more broad-based.

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The CBSL expects inflation to gradually converge with its 5% medium-term target by mid-2026, supported by recovering demand and normalising costs. Core inflation stood at 1.5% y/y in October. While price pressures remain contained, weak wage growth and soft credit expansion continue to weigh on aggregate demand. As a result, the CBSL has opted to maintain a neutral bias, preferring to let past rate cuts transmit fully before recalibrating.

Growth Momentum

Growth indicators have turned broadly positive, supported by festive season demand, investment momentum, and improved credit conditions. Industrial production rose 6.2% y/y in Q3, marking the third straight quarter of post-crisis recovery. That said, momentum eased slightly in September (4.7% y/y), down from 7.6% in August, as refined petroleum output and machinery production dipped due to base effects and inventory adjustments.

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The Manufacturing PMI surged to 61.0 in October, signalling strong expansion. New orders, especially in food and beverages, drove the rally, while production, employment, and stockpiling also picked up. Sentiment for the next quarter is optimistic, underpinned by year-end demand and improved business confidence. The Services PMI also rose sharply to 66.0, from 58.7 in September, driven by wholesale and retail trade, financial services, and personal services. New business orders, especially in finance, continued to grow, and hiring remained positive, albeit more modest. The strong PMI readings point to a broad-based Q4 rebound, reinforcing the view of a domestic consumption-led recovery.

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External Conditions

Sri Lanka's external position softened in September, recording the first monthly current account deficit of 2025 at USD 183mn, largely due to a 43.7% y/y surge in the trade deficit. Imports jumped 24.5% y/y-driven by vehicle and capital goods-while exports rose 12.5% y/y. Despite the monthly setback, the Jan-Sep current account remained in surplus at USD 1.9bn.

The services account delivered cumulative net inflows of USD 2.9bn, bolstered by tourism earnings (USD 2.5bn, +5.3% y/y) and transport services. However, monthly inflows dipped due to weaker maritime and air transport. Worker remittances remained a key buffer, rising 25.2% y/y in September to USD 696mn, the highest monthly figure since 2020. Gross official reserves held steady at USD 6.2bn, with the rupee depreciating 3.9% YTD by end-October.

Outlook

The CBSL's monetary policy remains calibrated to protect macro stability while enabling recovery. With inflation stabilising, industrial output broadening, and the PMI showing renewed business confidence, the economic rebound appears to be gaining structure. However, slower reserve accumulation, a widening trade gap, and uncertain global financial conditions argue for a prudent stance.

The 2026 Budget, yet to be passed , targets a 5.1% fiscal deficit and commits to maintaining the IMF reform trajectory. With no major tax hikes, a focus on digitalisation, targeted social spending, and renewed investor facilitation measures, the budget supports CBSL's efforts to anchor expectations without overheating the economy. For now, policy settings are likely to remain unchanged through Q1 2026. A rate cut may materialise only if inflation remains durably below 3%, reserves show sequential gains, and fiscal consolidation continues to hold. The central bank's next move will hinge on a delicate mix of domestic recovery signals, external account resilience, and global monetary dynamics.

• Next MPC meeting: Feb 25
• Current policy rate: 1.25%
• EmergingMarketWatch forecast: Cut by 25bps
• Rationale: Political uncertainty, slowing economy to push BOT to cut rates again

The Bank of Thailand is likely to continue with one more rate cut in its next meeting on Feb 25 after delivering 4 rate cuts in 2025, in our view. The slowing economy, the strengthening baht and the subdued inflation are likely to prompt the BOT to cut rates again. In addition, the persistent political uncertainty that is unlikely to go completely away after the upcoming Feb 8 elections also calls for policy support from the BOT at least in the short-term.

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We remind that the BOT decided unanimously to cut its policy rate in the last meeting of 2025, but at the same time it said that it sees limited space for more stimulus going forward. Thus, we do not think that the BOT will be able to cut rates by more than 25-50bps in 2026 unless deflation and recession risks appear.

Economic data

BOT projects that growth will slow down to 1.5% in 2026 from 2.2% in 2025 as the economy continues to suffer from weak domestic consumption. In addition, export growth is expected to decelerate dramatically in 2026 owing to a high base effect and the impact of US tariffs. At the same time, the BOT projects that CPI inflation will remain below its target range of 1% to 3% at least until 2027.

Looking at the latest data, CPI declined by 0.5% y/y in November and posted its 8th consecutive monthly decline. Industrial output, meanwhile, fell by 0.1% y/y in October amid weakness in exports. The banking system's loans fell by 1.0% y/y in Q3, the same rate of contraction as in Q2. This was driven by a continued decline in SME and consumer loans, whereas large business loans increased modestly.

Conclusion

We think that the BOT has room for 1-2 small rate cuts in 2026 and will likely frontload cuts in the beginning of the year in order to attenuate the expected economic slowdown. Inflation remains below the BOT's target, which also unties its hands to cut rates. On the other hand, the strong baht also make the moment opportune for the BOT to cut rates. The main factor that can prevent the BOT from cutting rates is financial stability and a potential resurgence of household lending growth. However, the latest data from Q3 suggests that credit growth remains subdued.

Further reading

MPC decision on Dec 17

Schedule of MPC meetings

Edited minutes of MPC meetings

Monetary policy report

• Current rate: 15.5%
• Foreign aid sufficient for now, but no uncertainty on 2026-2027
• Easing cycle should begin in January if Europe approves additional assistance

On Dec 11, the central bank (NBU) decided to keep the key rate on hold at 15.5% again, for the sixth time in a row. The NBU explained that, although inflation has been lower than projected, inflation expectations remained high, and there is a need to ensure the attractiveness of government debt and the FX market sustainability. The NBU noted that high rates have not prevented a fast credit growth so far this year. Credit growth accelerated to 20% y/y in November, according to an NBU update from Dec 15.

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Headline CPI inflation and core inflation decreased in November for the sixth month in a row, both to 9.3% y/y, on the back of increased supply of cheap food from the new harvest. The NBU said it expects disinflation to continue down the road, although not as fast as in H2 2025. It noted that although international assistance has been sufficient thus far, there is no certainty about 2026-2027. We think that if the EU finds a way to boost assistance to Ukraine for the next two years at the Dec 18-19 summit, the NBU should be more inclined to begin an easing cycle in January. The next rate decision is scheduled for Jan 29.