Frontier FX was mixed last week despite broad dollar strength against the majors. GHC, KZT, and CRC outperformed while RSD, UYU, and BDT underperformed. However, Frontier FX’s surge at the start of the week due to the US-China trade truce gave way to steady losses as the euphoria wore off. Indeed, reports suggest that the U.S. does not have the manpower to negotiate many trade deals and so will instead set tariff rates over the next 2-3 weeks. This ongoing tariff uncertainty is likely to weigh on Frontier FX this week.
EUROPE/MIDDLE EAST/AFRICA
Nigeria central bank meets Tuesday and is expected to keep rates steady at 27.5%. At the last meeting February 20, the central bank kept rates steady for the first time since March 2022. Over that tightening cycle, 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. April headline inflation came in at 23.7% y/y vs. 24.2% in March, with progress showing signs of leveling off. Since inflation remains somewhat elevated, another hold seems likely.
Sedlabanki meets Wednesday and is expected to cut rates 25 bp to 7.5%. At the last meeting March 19, Sedlabanki cut rates 25 bp to 7.75% after two straight 50 bp cuts and noted that “Although inflation has eased and inflation expectations have fallen in the recent term, inflation pressures remain, which calls for a continued tight monetary stance and caution regarding decisions going forward. This is compounded by significant global economic uncertainty.” Since then, April CPI data ran hot. Headline picked up to 4.2% y/y vs. 3.8% in March, the first acceleration since July 2024 and back above the 1-4% target range. As such, we see risks of a hawkish surprise and steady rates this week.
Egypt central bank meets Thursday and is expected to cut rates 200 bp to 23.0%. However, the market is split as several analysts polled by Bloomberg look for 150 and 250 bp cuts. At the last meeting April 17, the bank delivered a dovish surprise and started the easing cycle with a 225 bp cut to 25.0% vs. 125-150 bp expected. It noted that “Inflation is expected to continue declining throughout 2025 and 2026, albeit at a slower pace compared to the decline in Q1 2025. The slower disinflation path is attributed to the impact of recently implemented and planned fiscal consolidation measures in 2025, in addition to the downward stickiness of non-food inflation.” With EGP strengthening this month, we see risks of a dovish surprise this week.
ASIA
Sri Lanka central bank meets Thursday and is expected to keep rates steady at 8.0%. Deflation continued to ease in April to -2.0% y/y vs. the cycle low of -4.2% y/y in February. At the last meeting March 26, the central bank kept rates steady at 8.0% and Governor Weerasinghe said inflation should come back into positive territory in H2 and “So we thought this is the right, appropriate policy stance for the time being.” However, with deflation lingering, we see some risks of a dovish surprise this week.
