Frontier Preview for the Week of May 25, 2025

May 25, 2025

Here's a look at the main drivers in Frontier Markets this week.

Frontier FX was mixed last week despite broad dollar losses against the majors. GHC, RSD, and UYU outperformed while CRC, KZT, and VND underperformed. The dollar continues to experience a perfect storm of negative drivers: growing fiscal concerns, unpredictable tariff policies, and weaker U.S. data. Those drivers are likely to carry over into this week. However, the backdrop for Frontier Markets remains difficult as global growth will suffer from the intensifying trade war.

EUROPE/MIDDLE EAST/AFRICA

Iceland reports May CPI data Wednesday. Recall that April CPI data ran hot as 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. At the last meeting May 20, Sedlabanki cut rates 25 bp to 7.5%, as expected. This was the second straight 25 bp cut after two straight 50 bp cuts. The bank noted that “inflationary pressures remain,” adding that “Further interest rate cuts will depend on whether inflation moves closer to the bank’s 2.5% target.” If inflation continues to run hot, we see risks of a hold at the next meeting August 20.

Kenya reports May CPI data Friday. CPI accelerated for the sixth straight month in April to 4.1% y/y vs. 3.6% in March. This was the highest since September but still remains below the midpoint of the 2.5-7.5% target range. At the last meeting April 8, the central bank delivered a dovish surprise and cut rates 75 bp to 10.0% vs. 50 bp expected. Next meeting is June 4. With inflation picking up, this could keep the bank cautious and limit it to a smaller cut.

ASIA

Sri Lanka reports May CPI data Friday. Deflation is seen continuing with -1.2% y/y expected vs. -2.0% in April. Though up from the cycle low of -4.2% y/y in February, ongoing deflation led the central bank unexpectedly cut rates 25 bp to 7.75% at the last meeting May 22. The bank said “The Board is of the view that this measured easing of monetary policy stance will support steering inflation toward the target of 5%, amidst global uncertainties and current subdued inflationary pressures.” Next meeting is July 23 and with deflation lingering, we believe another cut is likely.

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