EM Preview for the Week of February 18, 2024

February 18, 2024

EM FX was mostly softer last week as the dollar mounted a broad-based rally on the back of firm U.S. data. PEN, ZAR, and COP outperformed while CZK, HUF, and KRW underperformed. Fed easing expectations continue to get pushed out and that is likely to remain dollar positive. Meanwhile, China returns from holiday this week but is unlikely to provide any positive drivers for EM.


Mexico reports mid-February CPI Thursday. Headline is expected at 4.70% y/y vs. 4.87% previously, while core is expected at 4.67% y/y vs. 4.75% previously. If so, headline would be the lowest since mid-December but still above the 2-4% target range. Banco de Mexico also releases its minutes Thursday. At the February 8 meeting, the bank kept rates steady at 11.25% and removed the phrase about holding rates “for some time.” Instead, the bank said it would make its decisions at the next meetings “depending on available information.” We don’t expect a cut at the next meeting March 21, and believe May 9 is more likely in light of stubbornly high inflation. The swaps market is pricing in 25 bp of easing over the next three months, followed by another 25 bp over the subsequent three months. Q4 current account data will be reported Friday.


South Africa reports January CPI Thursday. Headline is expected at 5.4% y/y vs. 5.1% in December, while core is expected to remain steady at 4.5% for a third consecutive month. If so, it would be the first acceleration since October but would remain within the 3-6% target range. The South African Reserve Bank forecasts headline CPI inflation to average 4.7% over Q1 and Q2. If this scenario pans out, the South African Reserve Bank should manage to deliver the 75 bp of rate cuts over 2024 implied in their latest set of forecasts.

Turkey central bank meets Thursday and is expected to keep rates steady at 45.0%. At the last meeting January 25, the bank signaled that the tightening cycle was likely over as “the Committee assesses that the monetary tightness required to establish the disinflation course is achieved and that this level will be maintained as long as needed…until there is a significant decline in the underlying trend of monthly inflation and until inflation expectations converge to the projected forecast range.” Turkey’s OIS curve implies nearly 12 percentage points of policy rate cuts over the next 12 months, which will be hard to do with punishingly high (and rising) inflation. This would mean real rates will remain deeply negative and be a huge drag on TRY.


China banks set their key Loan Prime Rates Tuesday. The 1- and 5-year LPRs are likely to be kept steady after the PBOC just kept its key MLF rate steady at 2.5% over the weekend. Deflation deepened in January and weak aggregate demand suggests little relief in sight. While further monetary easing is likely in the coming months, it is unlikely to have much impact until the huge debt overhang is addressed.

Bank Indonesia meets Wednesday and is expected to keep rates steady at 6.0%. At the last meeting January 17, the bank kept rates steady at 6.0% and Governor Warjiyo said “Of course, there will still be room for a reduction in the BI rate in the future” and added that it would depend on how the rupiah, inflation, and credit growth develop. Bloomberg consensus sees steady rates through H1 followed by 50 bp of easing in Q3 followed by another 25 bp in Q4. Rates are seen bottoming at 4.75% in 2025.

Bank of Korea meets Thursday and is expected to keep rates steady at 3.5%. At the last meeting January 11, the bank removed the phrase “need to raise base rate further” from the policy statement. However, Governor Rhee stressed that it was premature to even talk about rate cuts. He added that the bank sees the rate staying high for a “considerable period” and stressed that it would be hard to cut rates for at least the next six months. The swaps market is pricing in steady rates over the next six months followed by 25 bp of easing over the subsequent six months.

Malaysia reports January CPI Friday. Headline is expected to rise a tick to 1.6% y/y. If so, it would be the first acceleration since August 2022. While Bank Negara does not have an explicit inflation target, low price pressures should allow it to remain on hold for now with an eye towards potential easing in H2. Of note, the swaps market is pricing in steady rates over the next 12 months.

Singapore reports January CPI Friday. Headline is expected to rise two ticks to 3.9% y/y while core is expected to rise three ticks to 3.6% y/y. If so, headline would accelerate for the second straight month to the highest since October. While the MAS does not have an explicit inflation target, stubborn price pressures kept it on hold in January and may do so again in April.  

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