EM FX was mixed last week, reflecting in part the dollar’s mixed performance against the majors. CLP, MXN, and COP outperformed while KRW, TRY, and THB underperformed. Despite U.S. claims of progress in trade talks, we remain skeptical that any agreement of substance can be reached to so quickly. Meanwhile, both U.S. and China data are expected to show signs of softening from the trade war and that will be negative for EM FX.
AMERICAS
Chile central bank meets Tuesday and is expected to keep rates steady at 5.0%. At the last meeting March 21, the bank kept rates steady at 5.0% for the second straight meeting and noted that “The overall background information at hand points to an inflationary outlook that continues to face significant risks, stressing the need for caution.” Despite the hawkish guidance, the swaps market is pricing in another 75 bp of easing over the next 12 months that would see the policy rate bottom near 4.25%.
Colombia central bank meets Wednesday and is expected to keep rates steady at 9.5%. At the last meeting March 31, the bank kept rates steady at 9.5% for the second straight meeting and noted that “The decision not to change the interest rate maintains a cautious monetary stance pending new information over the coming months to determine the possibility of further interest rate cuts.” However, it was a 4-3 split vote and so the bar for the next cut is quite low. Indeed, the swaps market is pricing in 150 bp of easing over the next 12 months that would see the policy rate bottom near 8.0%.
Peru reports April CPI data Thursday. Headline is expected at 1.52% y/y vs. 1.28% in March. If so, it would be the first acceleration since November but would remain in the bottom half of the 1-3% target range. At the last policy meeting April 10, the central bank kept rates steady at 4.75% and warned that “Global economic perspectives have deteriorated due to the high uncertainty derived from restrictive measures around global trade. In this context, volatility in financial markets has been accentuated, as well as the risks to the global economy.” This suggests a rate cut is possible at the next meeting May 8.
EUROPE/MIDDLE EAST/AFRICA
National Bank of Hungary meets Tuesday and is expected to keep rates steady at 6.50%. At the last March 25 meeting, the bank voted unanimously to keep rates steady at 6.5% and cautioned that “the uncertain international environment and the outlook for inflation warrant the maintenance of tight monetary conditions.” Governor Varga added “the key interest rate can stay at its current level for a sustained period.” Despite the hawkish guidance, the swaps market is pricing in 75 bp of easing over the next twelve months.
Poland reports April CPI data Wednesday. Headline is expected at 4.3% y/y vs. 4.9% in March. If so, it would be the lowest since August but would remain above the 1.5-3.5% target range. At the last policy meeting April 2, National Bank of Poland 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, other bank officials have said that a cut at the May meeting is likely. The swaps market is pricing in 150 bp of total easing over the next 12 months.
ASIA
China reports official April PMIs Wednesday. Manufacturing is expected at 49.8 vs. 50.5 in March, while non-manufacturing is expected to remain steady at 50.8. If so, the composite would fall from 51.4 in March. Caixin also reports its manufacturing PMI Wednesday and is expected at 49.7 vs. 51.2 in March. The impact of the trade war is starting to be felt by China but we do not believe it will back down or soften its stance anytime soon. However, expect more stimulus measures in the coming weeks.
Bank of Thailand meets Wednesday and is expected to cut rates 25 bp to 1.75%. However, nearly a third of the 17 analysts polled by Bloomberg look for steady rates. At the last meeting February 26, the bank delivered a dovish surprise and cut rates 25 bp 2.0% vs. no change expected. The bank noted that “The Thai economy is expected to expand at a slower pace than previously estimated due to the industrial sector being pressured by structural problems and competition from foreign products, as well as higher risks from trade policies of major economies.” Assistant Governor Sakkapop said that the 2% rate represents neutral policy, adding “The bar will be high next time.” Despite that hawkish guidance, the swaps market is pricing in 75 bp of easing over the next 12 months that would see the policy rate bottom near 1.25%.
Korea reports April CPI data Friday. Headline is expected to fall a tick to 2.0% y/y, while core is expected to remain steady at 1.9% y/y. If so, headline would be right at the 2% target. At the last meeting April 17, Bank of Korea kept rates steady at 2.75%, as expected. There was one dissent in favor of a 25 bp cut to 2.5%. The bank said growth has weakened more than expected due to US trade policy and domestic political uncertainty. It stressed that downside risks have increased significantly since February and so it will continue to maintain a policy bias towards more rate cuts. Governor Rhee said all six members of the board were open to a cut over the next three months, adding that with regards to the next meeting May 29, “Naturally, this will be interpreted as a stronger signal for a cut compared to what was said in the past.” The swaps market is pricing in 50-75 bp of further easing over the next 12 months that would see the policy rate bottom between 2.00-2.25%.
Indonesia reports April CPI data Friday. Headline is expected at 1.44% y/y vs. 1.03% in March, while core is expected at 2.50% y/y vs. 2.48% in March. If so, headline would accelerate for the second straight month but remain below the 2-4% target range. Last week, Bank Indonesia kept rates steady at 5.75% for the third straight meeting. Governor Warjiyo said “We will continue to monitor the scope for interest rate cuts. Once rupiah stability is achieved, room for further cuts will become more open, and that will be the time.” Bloomberg consensus sees a 25 bp cut in Q2 followed by another 25 bp cut in Q4.
Singapore holds elections Saturday. The ruling People’s Action Party is widely expected to win, as it has in every election since independence in 1965. However, the election will be a referendum on Prime Minister Wong, who took over the post last year when former Prime Minister Lee stepped down. The PAP won only 61.2% of the vote in the 2020 elections, down nearly 9 percentage points from the previous vote but still good enough to win an overwhelming majority with 83 of the 95 seats in parliament. The opposition Workers’ Party is looking to build on the 10 seats it won last time, which was a record for any opposition party.
