Frontier FX was mixed last week, reflecting in part the dollar’s mixed performance against the majors. GHC, KZT, and UYU outperformed while UAH, CRC, and VND 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 Frontier FX.
EUROPE/MIDDLE EAST/AFRICA
Iceland reports April CPI data Tuesday. In March, headline fell to 3.8% y/y vs. 4.2% in February, the lowest since December 2020 and back in the 1-4% target range. At the March 19 policy meeting, Sedlabanki cut rates 25 bp to 7.75% after two straight 50 bp cuts and noted that “Although inflation has eased and inflation expectations have fallen in the recent term, inflation pressures remain, which calls for a continued tight monetary stance and caution regarding decisions going forward. This is compounded by significant global economic uncertainty.” Next policy meeting is May 21 and if disinflation continues, another cut seems likely then.
Kenya reports April CPI data Wednesday. CPI accelerated for the fifth straight month in March to 3.6% y/y vs. 3.5% in February. This was the highest since September but remains well below the midpoint of the 2.5-7.5% target range. At the last meeting April 8, the central bank delivered a dovish surprise and cut rates 75 bp to 10.0% vs. 50 bp expected. Next meeting is June 4. With inflation picking up, this could keep the bank cautious and limit it to a smaller cut.
Kazakhstan reports April CPI data Friday. Headline is expected at 10.4% y/y vs. 10.0% in March. If so, it would accelerate for the fifth straight month to the highest since October 2023 and would move further above the 5% target. At the last meeting April 11, the central bank kept rates steady at 16.5% after it delivered a hawkish surprise at the March meeting by hiking rates 125 bp to 16.5%. Next meeting is June 5 and if inflation keeps accelerating, another hike then seems likely.
ASIA
Sri Lanka reports April CPI data Wednesday. In March, deflation eased to -2.6% y/y from the cycle low of -4.2% y/y in February. At the last meeting March 26, the central bank kept rates steady at 8.0% and Governor Weerasinghe said inflation should come back into positive territory in H2 and “So we thought this is the right, appropriate policy stance for the time being.” Next meeting is May 28 and another hold seems likely. However, with if deflation lingers, we see some risks of a cut then.
Pakistan reports April CPI data Friday. Headline is expected at 0.5% y/y vs. 0.7% in March. If so, it would be the lowest reading for data going back to 2017 and would move further below the 6% target. Yet at the last meeting March 10, State Bank of Pakistan delivered a hawkish surprise and kept rates steady at 12.0% vs. an expected 50 bp cut to 11.50%. It was the first hold since April 2024 as “The Committee noted that the impact of sizable earlier reduction in policy rate is now materializing.” The bank also warned that “Core inflation is still at an elevated level and is proving stickier than anticipated.” Next policy meeting is May 5 and if disinflation continues, the easing cycle could resume.
