Frontier FX was mixed last week despite broad dollar weakness. RSD, JMD, and BOB outperformed while UYU, VND, and GHC underperformed. The greenback ended the week on a firmer note after stronger than expected jobs data led markets to pare back Fed easing expectations. However, this week should bring much higher tariffs that are likely to weigh on the US economic outlook, which in turn should weigh on the dollar and help boost Frontier FX.
EUROPE/MIDDLE EAST/AFRICA
Romania central bank meets Tuesday and is expected to keep rates steady at 6.5%. June CPI data will be reported Friday. Headline is expected at 5.50% y/y vs. 5.45% in May. If so, it would be the highest since April 2024 and would move further above the 1.5-3.5% target range. The central bank is likely to remain on hold until it moves back towards the target range. At the last meeting May 16, the central bank kept rates steady at 6.5% for the sixth straight meeting as markets were jittery ahead of the presidential election. Tighter fiscal policy could help make room for rate cuts later this year. This week, Romania’s new government plans to fast-track approval in parliament of fiscal austerity measures aimed at reducing the budget deficit to -7% of GDP in 2025 from -8.65%.
Serbia central bank meets Thursday and is expected to keep rates steady at 5.57%. June CPI data will be reported Friday. In May, headline came in at 3.8% y/y vs. 4.0% in April. This was the lowest since June 2024 and moved further within the 1.5-4.5% target range. At the last meeting June 12, the bank delivered a hawkish surprise and kept rates steady at 5.75% vs. an expected 25 bp cut. The bank cited “pronounced uncertainty regarding protectionist measures of the world’s leading economies and their impact on inflation and growth” as factors behind its decision. If disinflation continues, we see some chance of a dovish surprise this week.
Egypt central bank meets Thursday and is expected to cut rates 100 bp to 23.00%. At the last meeting May 22, the bank delivered a hawkish surprise and cut rates 100 bp to 24% vs. 200 bp expected and noted that while upside risks to the inflation outlook had eased compared to its April meeting, some risks remain given the “uncertainty regarding global trade protectionism, possible escalation of regional conflicts and higher-than-anticipated pass-through of fiscal consolidation to domestic prices.” Given that, “the MPC judges that cutting policy rates by 100 basis points strikes a balance between vigilance against prevailing risks and the ample room available to advance the monetary easing cycle, whilst supporting the projected disinflation path over the forecast horizon.” Egypt also reports June CPI data sometime this week. In May, headline rose to 16.8% y/y, the highest since January and so caution by the central bank is warranted.
Kazakhstan central bank meets Friday and is expected to keep rates steady at 16.5%. Headline inflation came in at 11.8% in June, the highest since September 2023 and further above the 5% target. At the last meeting June 5, the central bank kept rates steady at 16.5% and said “The current high inflation requires maintaining moderately tight monetary conditions for a longer period of time than previously assumed.” The bank added that it’s “highly probable that the base rate will remain at the current level until the end of 2025.” Another hold seems likely this week. However, with inflation picking up, we see some risks of a hawkish surprise.
