EM FX was mixed last week, taking advantage of a mixed dollar performance against the majors. MXN, COP, and HUF outperformed while TRY, KRW, and IDR underperformed. Signs of life in the Chinese economy should help support EM this week, but we ultimately believe that robust U.S. economic data will keep the dollar rally going.
AMERICAS
Peru reports March CPI Monday. Headline is expected at 2.80% y/y vs. 3.29% in February. If so, it would be the lowest since May 2021 and would more than reverse last month’s unexpected acceleration. At the last policy meeting March 7, the bank delivered a hawkish surprise and kept rates steady at 6.25% vs. an expected 25 bp cut to 6.0%. The bank noted that “The board reaffirms its commitment to adopting the necessary measures to ensure inflation returns to the target range.” It said that rate cuts will be data dependent and that inflation is expected to slow towards target. Next meeting is April 11 and since inflation resumed falling, a 25 bp cut to 6.0% is likely.
Colombia central bank minutes will be released Monday. At the March 22 meeting, the bank cut rates 50 bp to 12.25% but it was a dovish 5-2 vote as the dissents were in favor of larger 75 and 100 bp cuts. Given that the bank delivered a hawkish surprise at the previous meeting January 31 with a 25 bp cut vs. 50 bp expected, the shift to a larger 50 bp cut in March was significant and the vote suggests 75 bp cuts can't be ruled out in this cycle. March CPI will be reported Friday. Headline is expected at 7.36% y/y vs. 7.74% in February and core is expected at 8.78% y/y vs. 9.20% in February. If so, headline would be the lowest since January 2022 but still well above the 2-4% target range. The market is pricing in 400 bp of easing over the next year.
Chile central bank meets Tuesday and is expected to cut rates 75 bp to 6.5%. A couple of analysts look for a larger 100 bp cut. At the last meeting January 31, the bank cut rates 100 bp to 7.25%. The vote was 4-1, with the dissent in favor of a larger 125 bp cut. The bank said that the policy rate would hit the neutral level in H2. Since then, the peso has weakened 5% against the dollar and inflation unexpectedly accelerated to 4.5% y/y in February, the highest since November and back above the 2-4% target range. This argues for caution by the central bank. However, the market is pricing in 225 bp of easing over the next year.
Banco de Mexico minutes will be released Thursday. At the March 21 meeting, the bank started the easing cycle with a 25 bp cut to 11.0%. It was the first cut after keeping the rate on hold at 11.25% since August 2023. The vote was 4-1, with Espinosa dissenting in favor of steady rates. This suggests the easing cycle should continue without much resistance. The swaps market is pricing in 175 bp of easing over the next year.
EUROPE/MIDDLE EAST/AFRICA
Turkey reports March CPI Wednesday. Headline is expected at 69.05% y/y vs. 67.07% in February and core is expected at 75.19% y/y vs. 72.89% in February. If so, headline would be the highest since November 2022. At the last policy meeting March 21, the bank delivered a hawkish surprise and hiked rates 500 bp to 50.0% vs. no change expected. With inflation still accelerating, the central bank is playing some catchup but more likely needs to be done. Indeed, high inflation was likely one of the major factors behind Erdogan’s AKP’s defeat to opposition CHP in weekend municipal elections.
National Bank of Poland meets Thursday and is expected to keep rates steady at 5.75%. The bank will likely reiterate its neutral guidance that “the current level of the NBP interest rates is conducive to meeting the NBP inflation target in the medium term.” Indeed, MPC member Duda noted “I don’t see room for interest rate cuts this year” while MPC member Maslowska said “I think it will be possible to think about rate cuts in the second half of next year or early 2026.” The market is pricing in only 25 bp of easing over the next year but with inflation continuing to come in lower than expected and now running below target, we see risks that the bank delivers more easing than is currently priced in. However, escalating tension between the government and the central bank governor complicates the policy rate path projection.
ASIA
Korea reports March trade data Monday. Exports are expected at 4.2% y/y vs. 4.8% in February and imports are expected at -10.9% y/y vs. -13.1% in February. March CPI will be reported Tuesday. Both headline and core are expected to fall a tick to 3.0% y/y and 2.4% y/y, respectively. If so, headline would still remain above the 2% target. Next Bank of Korea meeting is April 12 and rates are expected to remain steady at 3.5%. At the last meeting February 22, the bank kept rates steady. While one board member was open to a rate cut, Governor Rhee stressed that “The direction of rate policy will become clear only when we become confident inflation is going to trend as we projected. If inflation slows as expected, our policy room will grow. But if it doesn’t, we should think of other methods, too.” He added that a rate cut in H1 was unlikely. The swaps market is pricing in steady rates over the next six months followed by 25 bp of easing over the subsequent six months.
Caixin reports March manufacturing PMI Monday. Headline is expected to rise a tick to 51.0. Its services and composite PMIs will be reported Wednesday, with services expected to rise two ticks to 52.7. However, there are upside risks after official PMIs came in firmer than expected over the weekend, with manufacturing at 50.8 vs. 49.1 in February, non-manufacturing at 53.0 vs. 51.4 in February, and the composite at 52.7 vs. 50.9 in February. This was the highest composite reading since May 2023. Until the nation’s huge debt overhang is addressed, it’s hard for us to get excited about a modest cyclical upturn.
Indonesia reports March CPI Monday. Headline is expected at 2.91% y/y vs. 2.75% in February and core is expected at 1.71% y/y vs. 1.68% in February. If so, headline would be the highest since August 2023 and approaching the 3% target. Next Bank Indonesia meeting is April 30, and no change is expected then. At the last meeting March 20, the bank left rates steady and Governor Warjiyo said rates would be kept steady to help support the rupiah. He added that cuts will only be considered in H2, when Bank Indonesia expects the Fed to cut. Bloomberg consensus sees steady rates through H1 followed by 25 bp of easing in Q3 followed by another 25 bp in Q4.
Philippines reports March CPI Friday. Headline is expected at 3.8% y/y vs. 3.4% in February. If so, this would be the highest since December and approaching the top of the 2-4% target range. Next central bank meeting is April 8, and no change is expected then. At the last meeting February 15, the bank left rates steady but the tone was slightly less hawkish as the bank noted “The risks to the inflation outlook have receded but remain tilted toward the upside” but added that it was “appropriate to keep policy settings unchanged in the near term.” Despite the less hawkish tone, the swaps market is pricing in the start of an easing cycle over the next three months, which we view as unlikely given sticky inflation.
Thailand reports March CPI Friday. Headline is expected at -0.40% y/y vs. -0.77% in February, while core is expected at 0.44% y/y vs. 0.43% in February. If so, inflation would be the highest since October but still well below the 1-3% target range. Next Bank of Thailand meeting is April 10 and a 25 bp cut to 2.25% seems likely. At the last meeting February 7, the bank left rates steady despite heavy jawboning from the government. However, it was a dovish hold as the 7-2 vote was the first split in nearly a year and a half. The two dissents favored a 25 bp cut and so the bank took the first steps toward an easing cycle. While outright deflation makes a strong case for easing, this sort of interference should be troubling for investors. Of note, the swaps market is pricing in the start of an easing cycle with 25 bp of cuts over the next three months.
Reserve Bank of India meets Friday and is expected to keep rates steady at 6.5%. At the last meeting February 8, the bank left rates steady but it was a hawkish hold by a 5-1 vote, and 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.” Nonetheless, the swaps market is pricing in the start of an easing cycle with a 25 bp cut over the next three months.
