Frontier FX was mixed last week despite broad dollar weakness against the majors last week. RSD, VND, and UYU outperformed while KZT, LKR, and UAH underperformed. Even though risk assets rallied after the reciprocal tariffs were paused for 90 days, we believe the backdrop for Frontier countries remains very negative. While the dollar is likely to remain under pressure this week, we look for Frontier FX and the growth-sensitive majors to underperform.
AMERICAS
Argentina reached an agreement with the IMF over a new $20 bln program. $12 bln of funding will be available up front, with the remaining $8 bln to be disbursed over time. Before anyone gets too excited, recall that this is the nation’s 23rd IMF program overall and the third since 2018. One noteworthy part of the program is that the central bank will allow the peso (currently around 1075) to trade freely between 1000-1400 per USD. That initial range would then be widened by 1% at both ends end every month. In addition to the IMF program, Argentina also obtained a $12 bln aid package from the World Bank and a $10 bln package from the Inter-American Development Bank, both over the next three years.
EUROPE/MIDDLE EAST/AFRICA
Nigeria reports March CPI data Tuesday. In February, headline inflation eased slightly to 23.2% y/y vs. 24.5% in January. At the last meeting February 20, the central bank kept rates steady for the first time since March 2022. Over that time, the bank hiked rates from 11.50% to 27.50% currently even as inflation rose from 15.9% y/y in March 2022 to peak at 34.6% y/y in November 2024. Next meeting is May 20 and if inflation continue to cool, another hold is expected.
Egypt central bank meets Thursday and is expected to cut rates 75 bp to 26.50%. The bank has been on hold since its last hike in March 2024. At the last meeting February 20, the bank said “Upside risks surrounding the inflation outlook have increased compared to the previous MPC meeting,” due largely to “the increasingly uncertain global and regional outlook regarding the impact of U.S. protectionist trade policies and geopolitical tensions.” However, the bank added that “Nevertheless, headline inflation is expected to decline substantially in Q1 2025, driven by the cumulative impact of monetary policy tightening and the favorable base effect.” Since then, inflation has fallen sharply and so the easing cycle is expected to start this week.
