EM FX was mixed last week despite broad dollar weakness against the majors last week. CZK, KRW, and PLN outperformed while IDR, PEN, and INR underperformed. Even though risk assets rallied after the reciprocal tariffs were paused for 90 days, we believe the backdrop for EM remains very negative. While the dollar is likely to remain under pressure this week, we look for EM FX and the growth-sensitive majors to underperform.
EUROPE/MIDDLE EAST/AFRICA
SARB publishes its Monetary Policy Review Tuesday. The MPR is published twice a year and is aimed at broadening the public’s understanding of the objectives and conduct of monetary policy. The MPR covers domestic and international developments that affect the monetary policy stance. At the last policy meeting March 20, the bank kept rates steady at 7.5%. Governor Kganyago said “The world economy is experiencing extreme levels of uncertainty. Trade tensions have escalated, and longstanding geopolitical relationships are shifting abruptly. In these circumstances, the global economic outlook is unpredictable. Globally we do not know where policy will end up.” Its model showed the policy rate at 7.25% for end-2025 and 7.21% for end-2026, which roughly lines up with market pricing for one more 25 bp cut.
Israel reports March CPI Tuesday. Headline is expected at 3.2% y/y vs. 3.4% in February. If so, it would be the lowest since December and nearing the 1-3% target range. Bank of Israel just left rates steady at 4.5% last week and Governor Yaron signaled caution ahead by noting “Before tariffs, inflation began to moderate, and we were in the right process of reducing excess demand. Right now, there could definitely be scenarios where we get off this path.” The bank cut its 2025 growth forecast by half a percentage point to 3.5% and sees the policy rate at 4.0% in 12 months vs. 4.0-4.25% at the January meeting. Of note, the swaps market is pricing in a policy rate of 3.75% over the next 12 months.
Turkey central bank meets Thursday and is expected to keep rates steady at 42.50%. The bank has cut the policy rate by 750 bp since December but may now have to hold rates steady to support the lira amid ongoing domestic political risks as well as rising external risks. The bank has already taken steps to defend the lira. At an interim meeting March 20, the bank tightened monetary conditions without a formal rate hike by raising the lending rate 200 bp to 46%. The bank also sold some of its FX reserves to shore up the lira. Gross FX reserves dropped to $78 bln in the week of April 4 vs. $97 bln the week of March 14, before the domestic political turmoil. The swaps market is pricing in 125 bp of easing over the next three months and 1125 bp of total easing over the next 12 months, but much will depend on both internal and external developments.
ASIA
Monetary Authority of Singapore meets Monday and is expected to loosen policy again. At the last meeting January, the MAS loosened policy by reducing “slightly” the slope of its S$NEER trading band whilst keeping the width and midpoint unchanged. This was the first time it had eased since 2020. The MAS cuts its core inflation forecast for this year to 1-2% vs. 1.5-2.5% previously and noted that core “has moderated more quickly than expected and will remain below 2% this year, reflecting the return to low and stable underlying price pressures.” Since then, the risks to regional growth and activity have picked up due to the U.S. tariffs and so warrant another reduction in the slope of its S$NEER trading band. Q1 GDP data will be reported at the same time. Q1 growth is expected at 4.5% y/y vs. 5.0% in Q4, while the q/q rate is expected at -0.4% vs. 0.5% in Q4.
India reports March CPI Tuesday. Headline is expected at 3.50% y/y vs. 3.61% in February. If so, it would be the lowest since August 2019 and further below the midpoint of the 2-6% target range. At the last week’s meeting, the Reserve Bank of India cut rates 25 bp to 6.0%, as expected. The decision was unanimous. Moreover, the bank changed the policy stance from neutral to accommodative, implying more cuts are in the pipeline. Indeed, Governor Malhotra said “Going forward, absent any shocks, the MPC is considering only two options: status quo or rate cut. The domestic growth-inflation trajectory demands monetary policy to be growth-supportive, while being watchful on the inflation front.” The swaps market is pricing in 50 bp of further easing over the next 12 months that would see the policy rate bottom near 5.50%.
China reports March trade data Monday. Exports are expected at 4.6% y/y and imports are expected at -2.1% y/y. Q1 GDP, March IP, retail sales, and investment data will be reported Wednesday. GDP growth is expected at 1.4% q/q vs. 1.6% in Q4, while the y/y rate is expected to fall two ticks to 5.2%. Over the weekend, March new loan and aggregate financing came in higher than expected. We expect stimulus measures to pick up as policymakers act to help offset the headwinds from the trade war. However, we continue to expect authorities to continue leaning against excessive yuan weakness.
Bank of Korea meets Thursday and is expected to keep rates steady at 2.75%.
At the last meeting February 25, the bank cut rates 25 bp as expected. The decision was unanimous, but only 2 board members saw another cut over the next three months while 6 saw steady rates. The bank said that the cut was made to “mitigate downward pressure on the economy” and added that growth was expected to slow significantly. The central bank cut its 2025 growth forecast a couple of ticks to 1.5%, and Governor Rhee said “The outline of Trump’s tariff policies has now largely taken shape, and that prompted the downgrade from January.” Rhee added that market pricing of 2-3 cuts this year is similar to the bank’s assumptions. The swaps market is pricing in 50 bp of further easing over the next 12 months that would see the policy rate bottom near 2.25%.
