EM FX was mixed last week and reflected in part the dollar’s mixed performance against the majors. TWD, KRW, and MYR outperformed while CLP, COP, and MXN underperformed. We expect Chinese data this week to confirm that the trade war is having an impact on growth. Elsewhere, the Fed is expected to deliver a hawkish hold. In short, the global backdrop remains difficult for EM.
AMERICAS
Brazil central bank meets Wednesday and is expected to hike rates 50 bp to 14.75%. At the last meeting March 19, the bank hiked rates 100 bp to 14.25% and said that “In light of the continuation of the adverse scenario for inflation convergence, the heightened uncertainty and the lags inherent to the ongoing monetary tightening cycle, the Committee anticipates an adjustment of lower magnitude in the next meeting, if the scenario evolves as expected.” The swaps market is pricing in 75 bp of total tightening over the next three months that would see the policy rate peak near 15.0%. Brazil reports April IPCA inflation data Friday. Headline is expected at 5.54% y/y vs. 5.48% in March. If so, it would be the highest since February 2023 and would move further above the 1.5-4.5% target range.
Chile reports April CPI data Thursday. Headline is expected at 4.6% y/y vs. 4.9% in March. If so, it would be the lowest since December but still above the 2-4% target range. The central bank left rates steady at 5.0% last week and said “Changes in global trade policy have deteriorated the prospects for global growth, while increasing uncertainty about its future evolution. The magnitude and timing of these effects on the local economy are still uncertain.” The swaps market is pricing in 75 bp of easing over the next 12 months that would see the policy rate bottom near 4.25%.
Mexico reports April CPI data Thursday. Headline is expected at 3.90% y/y vs. 3.80% in March, while core is expected at 3.92% y/y vs, 3.64% in March. If so, headline would accelerate for the third straight month to the highest since December and nearing the top of the 2-4% target range. At the last meeting March 27, Banco de Mexico cut rates 50 bp to 9.0% and indicated that more cuts of “similar magnitude” were possible. Minutes of that meeting showed that “Most members noted that risks associated with trade policy changes in the United States would have both upward and downward repercussions for inflation.” However, one board member noted that “the effects of the uncertainty resulting from said policy so far have already been reflected in an additional weakening of the economy.” Next meeting is May 15 and another 50 bp cut to 8.5% seems likely. Looking ahead, the swaps market is pricing in 175 bp of total easing over the next 12 months that would see the policy rate bottom near 7.25%.
Colombia central bank releases its quarterly monetary policy report Monday. It then release its minutes Tuesday. At last week’s meeting, the bank delivered a dovish surprise and cut rates 25 bp to 9.25% vs. no change expected. It said that the cut “maintains a cautious monetary policy stance, while continuing to support the recovery of economic activity without jeopardizing the convergence of inflation to the target.” Looking ahead, the swaps market is pricing in 100-125 bp of total easing over the next 12 months that would see the policy rate bottom between 8.0-8.25%. Colombia then reports April CPI data Thursday. Headline is expected at 4.97% y/y vs. 5.09% in March, while core is expected at 5.12% y/y vs. 5.19% in March. If so, headline would be the lowest since December 2021 but would remain above the 2-4% target range.
Peru central bank meets Thursday and is expected to keep rates steady at 4.75%. However, the market is split as nearly half the analysts polled by Bloomberg look for a 25 bp cut to 4.5%. At the last meeting April 10, the bank kept rates steady at 4.75% for the third straight meeting. It noted that the economic outlook has deteriorated but added that it expects inflation to accelerate to the 2% target in the coming months.
EUROPE/MIDDLE EAST/AFRICA
Turkey reports April CPI data Monday. Headline is expected at 38.80% y/y vs. 38.10% in March, while core is expected at 36.85% y/y vs. 37.42% in March. While the y/y rate for headline continues to fall, the m/m rate could pick up for the third straight month. At the last meeting April 17, the central bank delivered a hawkish surprise and hiked rates 350 bp to 46.0% vs. no change expected. It noted that “Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen.” Next meeting is June 19 and the decision then will depend on both internal and external developments.
Czech Republic reports April CPI data Tuesday. Headline is expected at 2.1% y/y vs. 2.7% in March. If so, it would be the lowest since June 2024 and nearing the midpoint of the 1-3% target range. Czech National Bank meets Wednesday and is expected to cut rates 25 bp to 3.5%. A few of the analysts surveyed by Bloomberg expect no policy change. At the last meeting March 26, the central bank kept rates steady at 3.75% and cautioned that “inflationary risks persist, requiring continued slightly restrictive monetary policy.” However, Governor Michl said “We can’t rule anything out. We are keeping all options on the table, including a further reduction in rates, as well as a rate hike.” Michl added more recently “If we lower interest rates further, it will be very cautious.”
National Bank of Poland meets Wednesday and is expected to cut rates 50 bp to 5.25%. Minutes from the April 2 meeting will be released Friday. At that meeting, the bank kept rates steady at 5.75% but unexpectedly signaled a switch to a dovish stance. Governor Glapinski said lower-than-expected inflation in the first quarter triggered a “radical shift” in policymakers’ outlook, adding that the scale of monetary easing in 2025 may exceed 100 bp if the government prevents energy prices from rising. Since then, inflation eased further in April with headline at a 10-month low of 4.2% y/y vs. 4.9% in March and tracking below the NBP’s 2025 projection of 4.9%. Looking ahead, the swaps market is pricing in 150 bp of total easing over the next 12 months, followed by another 50 bp over the subsequent 12 months that would see the policy rate bottom near 3.75%.
Hungary reports April CPI data Friday. Headline is expected at 4.0% y/y vs. 4.7% in March. If so, it would be lowest since November 2024 and right at the top of the 2-4% target range. At the last meeting April 29, the central bank kept rates steady at 6.5% and said “Restrictive monetary policy contributes to the maintenance of financial market stability, the anchoring of inflation expectations consistently with the central bank target and, as a result, to the achievement of the inflation target in a sustainable manner by ensuring positive real interest rates.” Governor Varga added that rates would be kept at the current level for a “sustained period.” Next meeting is May 27 and another hold seems likely.
ASIA
Philippines reports April CPI data Tuesday. Headline is expected to remain steady at 1.8% y/y. If so, inflation would remain below the 2-4% target range for the second straight month. At the last meeting April 10, the central bank cut rates 25 bp to 5.5% and Governor Remolona said “Like the rest of the world, we’re looking at slower growth, but unlike the rest of the world, we’re looking at lower inflation. On balance, the more manageable inflation outlook and the risks to growth allow for a shift toward a more accommodative monetary policy stance.” He added that “The BSP will continue to take a measured approach in deciding on further monetary easing.” Next meeting is June 19 and another 25 bp cut seems likely. The swaps market is pricing in 200 bp of total easing over the next 12 months.
Caixin reports its services and composite PMIs Tuesday. Services is expected to fall a tick to 51.8. April trade data will be reported Friday. Exports are expected at 2.0% y/y vs. 12.4% in March, while imports are expected at -5.9% y/y vs. -4.3% in March. April CPI and PPI data will be reported Saturday local time. CPI is expected at 0.1% y/y vs. -0.1% in March, while PPI is expected at -2.6% y/y vs. -2.5% in March. With the trade war hurting the mainland economy, deflation risks remain elevated and so we expect more stimulus measures in the coming weeks.
Thailand reports April CPI data Tuesday. Headline is expected flat y/y vs. 0.84% in March, while core is expected at 0.90% y/y vs. 0.86% in March. If so, headline would remain below the 1-3% target range for second straight month. At last week’s meeting, the central bank cut rates 25 bp to 1.75% and said “The US trade policies and potential retaliations from major economies will cause significant changes in the global economic, financial, and trade landscape. The Thai economy is projected to expand at a slower pace than anticipated, with more downside risks due to uncertainty in major economies’ trade policies and a decline in the number of tourists.” Assistant Governor Sakkapop added “Monetary policy needs to be more accommodative. We have shifted our policy stance to easing.” Given this dovish guidance, the swaps market is pricing in 50 bp of easing over the next 12 months that would see the policy rate bottom near 1.25%. Next meeting is June 25 and another cut seems likely.
Taiwan reports April CPI data Wednesday. Headline is expected at 2.10% y/y vs. 2.29% in March, while core is expected at 1.50% y/y vs. 1.63% in March. While the central bank does not have an explicit inflation target, low price pressures will allow it to cut rates this year if the economy slows too much from the trade war. At the last meeting March 20, the central bank kept rates steady at 2.0% and sounded upbeat about the economic outlook. Since then, tariffs have roiled global markets. Next meeting is June 19 and while another hold seems likely, we expect a more cautious tone. April trade data will be reported Thursday. Exports are expected at 16.0% y/y vs. 18.6% in March, while imports are expected at 19.0% y/y vs. 28.8% in March.
Bank Negara meets Thursday and is expected to keep rates steady at 3.0%. However, a quarter of the 20 analysts polled by Bloomberg look for a 25 bp cut to 2.75%. At the last meeting March 6, the central bank kept rates steady at 3.0% and said that “The monetary policy stance remains supportive of the economy and is consistent with the current assessment of inflation and growth prospects.” The bank added that there are downside risks from a slowdown in Malaysia’s major trading partners, but Governor Abdul Rasheed Ghaffour said that the diversified economy and broad export base will help limit the impact from external shocks. Despite the bank’s upbeat outlook, the swaps market is now pricing in 50 bp of easing over the next 12 months.
