EM FX was mixed last week even thought the dollar was mostly firmer against the majors. ARS, TWD, and CLP outperformed while MYR, INR, and TRY underperformed. The dollar mounted a recovery on the back of solid data and a hawkish Fed, as well as increased optimism regarding the trade war. Those themes will be tested this week with the release of key inflation and retail sales data, as well as potential disappointment regarding a U.S.-China trade deal after a weekend of positive comments.
AMERICAS
Brazil central bank publishes the minutes of last week’s meeting Tuesday. At that meeting, the bank hiked rates 50 bp to 14.75% and noted that the easing cycle in in an “advanced stage” and that calibration of monetary policy depends on how inflation behaves. The bank warned that risks to the inflation outlook in both directions are higher than usual. As such, “This scenario prescribes a significantly contractionary monetary policy for a prolonged period to assure the convergence of inflation to the target.” The swaps market is pricing in one more 25 bp hike over the next three months that would see the policy rate top out near 15.0%.
Chile central bank publishes the minutes of April 29 meeting Thursday. At that meeting, the bank kept rates steady at 5.0% and said “Changes in global trade policy have deteriorated the prospects for global growth, while increasing uncertainty about its future evolution. The magnitude and timing of these effects on the local economy are still uncertain.” The swaps market is pricing in 75 bp of easing over the next 12 months that would see the policy rate bottom near 4.25%.
Banco de Mexico meets Thursday and is expected to cut rates 50 bp to 8.5%. At the last meeting March 27, Banco de Mexico cut rates 50 bp to 9.0% and indicated that more cuts of “similar magnitude” were possible. Minutes of that meeting showed that “Most members noted that risks associated with trade policy changes in the United States would have both upward and downward repercussions for inflation.” However, one board member noted that “the effects of the uncertainty resulting from said policy so far have already been reflected in an additional weakening of the economy.” Looking ahead, the swaps market is pricing in 175 bp of total easing over the next 12 months that would see the policy rate bottom near 7.25%.
EUROPE/MIDDLE EAST/AFRICA
National Bank of Hungary publishes its minutes Wednesday. At that April 29 meeting, the bank kept rates steady at 6.5% and said “Restrictive monetary policy contributes to the maintenance of financial market stability, the anchoring of inflation expectations consistently with the central bank target and, as a result, to the achievement of the inflation target in a sustainable manner by ensuring positive real interest rates.” Governor Varga added that rates would be kept at the current level for a “sustained period.” Next meeting is May 27 and another hold seems likely. However, the swaps market is pricing in 100 bp of easing over the next 12 months.
Israel reports April CPI data Thursday. Headline is expected to fall two ticks to 3.1% y/y. If so, it would be the lowest since June 2024 and nearing the top of the 1-3% target range. At the last meeting April 7, Bank of Israel kept rates steady at 4.5% 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. Next meeting is May 26 and another hold seems likely. However, the swaps market is pricing in the start of an easing cycle over the next six months along with 75 bp of total easing over the next 12 months.
ASIA
China reports April money and loan data sometime this week. New loans are expected at CNY700 bln vs. CNY3.6 trln in March, while aggregate financing is expected at CNY1.4 trln vs. CNY5.9 trln in March. These numbers should pick up a bit in May after the PBOC’s stimulus measures that were just announced. That said, those measures were fairly modest and we continue to believe more are coming. Indeed, inflation data over the weekend showed ongoing deflation.
India reports April CPI data sometime this week. Headline is expected at 3.20% y/y vs. 3.34% in March. At the last meeting April 9, the Reserve Bank of India cut rates 25 bp. The decision was unanimous. Moreover, RBI 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%.
