EM FX was mostly firmer last week, taking advantage of broad dollar weakness against the majors. PEN, ZAR, and THB outperformed while TRY, BRL, and ARS underperformed. The dollar is likely to remain on its back foot until the U.S. data come in a bit firmer, as last week’s dovish surprise from Powell along with the mixed jobs data undercut the greenback. For now, risk on sentiment should help EM build on its recent gains.
AMERICAS
Brazil reports February IPCA inflation Tuesday. Headline is expected at 4.44% y/y vs. 4.51% in January. If so, it would be the lowest since July 2023 and back within this year’s 1.5-4.5% target range. At the last COPOM meeting, the central bank cut rates 50 bp to 11.25% and said that pace of easing would be maintained over the next meetings. The next one is March 20 and another 50 bp cut to 10.75% is expected. Of note, the swaps market is pricing in 175 bp of total easing over the next six months that would see the policy rate bottom near 9.5%. January retail sales will be reported Thursday.
EUROPE/MIDDLE EAST/AFRICA
Czech Republic reports February CPI Monday. Headline is expected at 2.1% y/y vs. 2.3% in January. If so, it would be the lowest since February 2021 and nearing the center of the 1-3% target range. At the last policy meeting February 8, the Czech National Bank delivered a dovish surprise and cut rates 50 bp to 6.25% vs. 25 bp expected. Next policy meeting is March 20, and the size of the cut will depend in large part on how the koruna is trading. Of note, the swaps market is pricing in 250 bp of total easing over the next 12 months that would take the policy rate down to 3.75%. Retail sales will be reported Tuesday.
National Bank of Poland publishes its quarterly inflation report Monday. According to the central bank, there is a 50% probability that inflation will be between 2.8-4.3% in 2024 (vs. 3.2-6.2% in the November projections), with risks skewed to the upside. This validates the bank’s neutral policy guidance at the arch 6 meeting of neither hikes nor cuts this year. February CPI will be reported Friday. Headline is expected at 3.2% y/y vs. 3.9% in January. If so, it would be the lowest since March 2021 and back within the 1.5-3.5% target range. Next policy meeting is April 4, and no change is expected then. However, with inflation falling, the swaps market is pricing in 25 bp of reading over the next six months.
Bank of Israel releases its minutes Monday. At the February 26 meeting, the bank delivered a hawkish surprise and kept rates steady at 4.5% vs. an expected 25 bp cut to 4.25%. Q4 current account data will be reported Tuesday. February CPI will be reported Friday. Headline is expected at 2.5% y/y vs. 2.6% in January. If so, it would be the lowest since November 2021 and further within the 1-3% target range. Next policy meeting is April 8 and a 25 bp cut seems likely if disinflation continues. The swaps market is pricing in 50 bp of easing over the next six months followed by another 50 bp over the subsequent six months that would see the policy rate bottom near 3.5%.
Hungary central bank releases its minutes Wednesday. At the February 27 meeting, the bank cut rates 100 bp to 9.0%, as expected, and said it still saw the policy rate at 6-7% by the end of June. Since then, the feud between the central bank and the government has intensified, so much so that the bank warned that the tensions could limit the scope of further easing. Next policy meeting is March 26, and the size of the cut will depend in large part on how the forint is trading. Of note, the swaps market is pricing in 300 bp of total easing over the next 12 months that would see the policy rate bottom near 6.0%.
ASIA
China reports February new loan data sometime this week. New loans are expected at CNY1.5 trln vs. CNY4.92 trln in January, while aggregate financing is expected at CNY2.3 trln vs. CNY6.5 trln in January. PBOC sets its key 1-year MLF rate Friday. It is expected to be kept steady at 2.5%. It’s clear from the bond issuance plans announced last week that policymakers will not (and cannot) be relying on debt-fueled fiscal stimulus to boost growth. At the same time, monetary policy is reaching the limits of what it can do in a deflationary environment and so the 5% growth target for this year will be difficult to meet.
India reports February CPI Tuesday. Headline is expected at 5.07% y/y vs. 5.10% in January. If so, it would be the lowest since October and further within the 2-6% target range. At the last policy meeting February 8, the Reserve Bank of India kept rates steady at 6.5%. It was a hawkish hold as the the bank maintained its policy stance at “withdrawal of accommodation.” Governor Das stressed that “The job is not yet finished and we have to be vigilant of new supply shocks.” The swaps market is pricing in steady rates over the next three months followed by the start of an easing cycle with a 25 bp cut over the subsequent three months.
