A Pragmatic Approach: Better Safe than Sorry

Last week’s decision to cut interest rates may have seemed like a foregone conclusion.

For me, it definitely wasn’t.

In the end, I joined the consensus. It that was the right thing to do.
It’s an insurance cut and confidence boost, not a declaration of victory.

While I would have been comfortable waiting and not cutting rates in October, the cut has its advantages.

Given the current economic fragility, prudence is paramount. We have had little new information since our September gathering, but the batch of data we had was shifting the balance of risks on inflation to the downside.

Our decision to lower rates in October leaves the December meeting wide open. All options remain on the table.

By then, we will have a lot more information in terms of hard and soft data and a new set of forecasts to guide our hand.

The labour market remains resilient, with unemployment at historic lows. Yet, soft indicators and incoming surveys signal slowing employment growth.

If new data and forecasts confirm an accelerated pace in disinflation, we will be in a strong and comfortable position to continue the easing cycle.

The decline in wage growth and services inflation, for that matter, is still ahead of us. I would like to see more evident signs of this materialising before declaring victory in our inflation fight.

We operate in a geopolitical environment, which also poses a significant upside threat to inflation.

If new information points in the direction of higher inflation (risks), we can still slow down the pace at which we remove restrictions in the coming meetings. Even with three cuts delivered, we still remain in restrictive territory.

I’m increasingly confident that the disinflation path is on solid footing. But the doubting Thomas in me still needs to see further proof of a sustainable return to target.

We remain flexible and ready to act appropriately. This cut reinforces that spirit.

It’s better to be safe than sorry, and this move ensures we are well-prepared for what lies ahead.