EM Preview for the Week of March 24, 2024

March 24, 2024

EM FX was largely softer last week as the broad dollar recovery continued. TRY was the only EM currency to gain last week, while CLP, HUF, and THB were the worst performers. PCE data this week is likely to show persistently high inflation, preventing the Fed from cutting rates anytime soon. In turn, this should help the dollar extend its rally.


Brazil central bank minutes will be released Tuesday. At last week’s meeting, the bank cut rates 50 bp to 10.75% but would only commit to another hike of the same magnitude at the next meeting May 8, implying a move to smaller cuts after that. Brazil also reports mid-March IPCA inflation Tuesday. Headline is expected at 4.10% y/y vs. 4.49% in mid-February. If so, it would be the lowest since last July and would move further within the 1.5-4.5% target range. The swaps market is pricing in 100 of easing over the next six months that would see the policy rate bottom near 9.75%. The central bank releases its quarterly inflation report Thursday.


National Bank of Hungary meets Tuesday and is expected to cut the base rate 75 bp to 8.25%. However, a handful of analysts look for a smaller 50 bp cut and a couple look for a larger 100 bp cut. We see risks that the bank slashes again by 100 bp following signs of a pause in the conflict between the government and the central bank. At the last meeting February 27, the bank cut rates 100 bp to 9.0% vs. 75 bp the previous several meetings and confirmed that it still sees the policy rate around 6-7% at mid-year. Deputy Governor Virag said the accelerated pace of easing was “temporary” and that later moves would remain “gradual.” However, stagnant economic activity and strong disinflationary pressure leaves plenty of room for the central bank to continue easing aggressively.

Nigeria central bank meets Tuesday and is expected to hike rates 150-175 bp. However, the market is all over the place. Of the 14 analysts polled by Blomberg, 4 see no change, 1 sees a 100 bp hike, 2 see 125 bp, 5 see 200 bp, and 2 see 400 bp. At the last meeting February 27, the bank delivered a hawkish surprise and hiked rates 400 bp to 22.75% vs. 250 bp expected. Since then, February inflation came in higher than expected at 31.7% y/y and so more tightening is needed. This spike was due in large part to the devaluation in late January. Since then, the currency has gained and so inflation could start to ease.

South African Reserve Bank meets Wednesday and is expected to keep rates steady at 8.25%. Another hawkish hold is expected as last week, February CPI came in higher than expected, with headline at 5.6% y/y vs. 5.3% in January and core at 5.0% y/y vs. 4.6% in January. At the last meeting January 25, the bank delivered a hawkish hold as Governor Kganyago warned “At the current repurchase rate level, policy is restrictive, consistent with the inflation outlook and the need to address rising inflation expectations. Serious upside risks to the inflation trajectory from global and domestic sources are evident.” The swaps market is pricing in 25 bp of easing over the next 12 months, followed by another 25 bp over the subsequent 12 months.

Poland reports March CPI Friday. Headline is expected at 2.3% y/y vs. 2.8% in February. If so, it would be the lowest since April 2019 and would move into the bottom half of the 1.5-3.5% target range. However, the central bank remains concerned that inflation will pick up again. Indeed, Governor Glapinski said he’s quite certain that inflation will rise in H2. At the last meeting March 6, the central bank kept rates steady at 5.75% and signaled that it was unlikely to either hike or cut rates in 2024. 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 February CPI Monday. Headline is expected to fall a tick to 1.4% y/y. If so, it would be the lowest since February 2021. While Bank Negara does not have an explicit inflation target, the weak ringgit is likely to keep it on hold for the time being. At the last meeting March 7, the bank kept rates steady, and the exchange rate was clearly a consideration as the bank noted “the ringgit is currently undervalued, given Malaysia's economic fundamentals and growth prospects.” Next policy meeting is May 9, and no change is expected as the ringgit remains vulnerable. Indeed, the swaps market continues to price in steady rates over the next three years.

Singapore reports February CPI Monday. Headline is expected at 3.2% y/y vs. 2.9% in January, while core is expected at 3.4% y/y vs. 3.1% in January. While the Monetary Authority of Singapore does not have an explicit inflation target, persistent price pressures should keep it on hold at the next policy meeting in April. At the last meeting January 28, the MAS left policy unchanged and maintained the slope, width, and midpoint of its S$NEER trading band. It noted that “Core inflation is likely to remain elevated in the earlier part of the year, but should decline gradually and step down by” year-end and then falling further in 2025. February IP will be reported Tuesday.

China reports official March PMIs over the weekend. Manufacturing is expected at 50.2 vs. 49.1 in February. If so, it would be the first reading above 50 since September. However, we do not expect much of a pickup in the economy this year as stimulus efforts remain quite modest. Caixin PMIs will be reported next week.  

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