EM FX was mostly softer last week as the dollar mounted a broad-based recovery. INR, CLP, and MYR outperformed while TRY, MXN, and COP underperformed. The Fed delivered the cautious hold that we expected last week but stressed that tariff-induced inflation was likely to be transitory. This week brings March global PMI readings that will help determine if U.S. exceptionalism is indeed over.
AMERICAS
Mexico reports mid-March CPI Monday. Headline is expected at 3.70% y/y vs. 3.81% previously, while core is expected at 3.58% y/y vs. 3.66% previously. Banco de Mexico then meets Thursday and is expected to cut rates 50 bp to 9.0%. At the last meeting February 6, the bank also cut rates 50 bp. It was a dovish cut as the bank said “The Board estimates that looking forward it could continue calibrating the monetary policy stance and consider adjusting it in similar magnitudes.” The swaps market has reacted to the dovish signals and is now pricing in 175 bp of further easing over the next 12 months that would see the policy rate bottom near 7.75% vs. 8.5% before the February cut.
Chile central bank publishes its quarterly inflation report Monday. Last week, the bank kept rates steady at 5.0% for the second straight meeting and noted “The overall background information at hand points to an inflationary outlook that continues to face significant risks, stressing the need for caution.” Despite the hawkish guidance, the swaps market is pricing in another 25 bp of easing over the next 12 months.
Brazil central bank publishes its minutes Tuesday. Last week, it hiked rates 100 bp to 14.25% and noted that “The current scenario is marked by additional de-anchoring of inflation expectations, high inflation projections, resilience on economic activity and labor market pressures, which requires a more contractionary monetary policy.” It added that it would likely deliver a smaller hike at the next meeting May 7. The bank then publishes its quarterly inflation report Thursday. Mid-March IPCA inflation will also be reported Thursday. Headline is expected at 5.30% y/y vs. 4.96% in mid-February. If so, it would be the highest since mid-March 2023 and would move further above the 1.5-4.5% target range.
EUROPE/MIDDLE EAST/AFRICA
National Bank of Hungary meets Tuesday and is expected to keep rates steady at 6.5%. At the last meeting February 25, the bank kept rates steady at 6.5%. Deputy Governor Virag said then that “A cautious, patient, stability-oriented policy continues to be warranted,” adding that the bank will raise the top end of its 2025 inflation forecast from 4.1% in its updated macro forecasts that come at this week’s meeting. The swaps market is pricing in steady rates over the next 12 months.
Czech National Bank meets Wednesday and is expected to keep rates steady at 3.75%. At the last meeting February 6, CNB cut rates 25 bp to 3.75%, as expected. It was a hawkish cut, however, as Governor Michl warned that “Economic growth will be driven mainly by household consumption and government debt. Both of these factors are inflationary and a risk for inflation going forward. That’s why the bank board must be very careful about further interest rate cuts.” Despite the hawkish guidance, the swaps market is pricing in nearly 50 bp of easing over the next 12 months. On a side note, Michl received the 2025 award for the world’s best central bank governor, in part because the CNB was one of the first central banks to return inflation to the 2% target.
ASIA
Singapore reports February CPI Monday. Headline is expected to fall two ticks to 1.0% y/y and core is expected to fall a tick to 0.7% y/y. While the MAS does not have an explicit inflation target, low price pressures will allow it to loosen policy again this year if the economy slows too much. 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 has 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.” Next policy meeting is in April and we look for a hold as back-to-back moves seem unlikely.
