Publications

The ECB struck a more positive tone than in September, showing greater confidence in growth despite global uncertainty. It considers the 2% deposit rate appropriate and, unless incoming data materially change the outlook, appears ready to maintain its stance well into next year.

Before the meeting, we already saw scope for fewer cuts than the three currently penciled in for 2026. Following today’s meeting, we now hold a stronger bias toward fewer rate cuts ahead.

Treasury yields fell over the past month as futures almost fully price in a second straight rate cut next week, after Powell warned last week that the labor market may now be at a stage where “further declines in job openings might very well show up in unemployment.”

The CBRT reduced the policy rate by 100bps to 39.5%, parallel to the majority of the rate cut expectations of 100-150bps, with also a similar size of cuts in the corridor (38%-42.5%). We still maintain the view of gradual rate cuts going ahead, yet with increasing inflationary pressure.

Applying the methodology in Reifschneider and Wilcox (2022), an econometric regression was estimated using as explanatory factors four lags of annualized quarterly inflation and the unemployment gap. The objective was to estimate inflation persistence and the coefficient of the Phillips curve.

Since July, a combination of interest rate volatility and the electoral outcome in the Province of Buenos Aires has generated renewed tensions in financial markets. Higher rates, exchange rate pressures and weaker confidence have led to a slowdown in economic activity.

The global economy faces a double-edged sword in the last quarter of 2025. On the one hand, risks are mounting linked to US economic policies, a less cooperative international environment, and a host of potential geo-economic and institutional shocks. On the other hand, it maintains greater resilience.