EM FX was mixed last week despite broad dollar weakness against the majors. MXN, ZAR, and BRL outperformed while COP, TRY, and IDR underperformed. We believe dollar weakness will continue. However, we also continue to believe that the global growth outlook will deteriorate sharply this year and so recent gains in the growth-sensitive major currencies and EM FX are unlikely to be sustainable.
AMERICAS
Mexico reports mid-April CPI data Thursday. Headline is expected at 3.84% y/y vs. 3.93% previously, while core is expected at 3.81% y/y vs. 3.72% previously. If so, headline would move further within the 2-4% target range. At the last meeting March 27, Banco de Mexico cut rates 50 bp to 9.0%, as expected, 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.” Next meeting is May 15 and another 50 bp cut to 8.5% seems likely. Looking ahead, the swaps market is pricing in 175 bp of total easing over the next 12 months,
Brazil reports mid-April IPCA inflation Friday. Headline is expected at 5.50% y/y vs. 5.26% in mid-March. If so, it would be the highest since February 2023 and would move further above the 1.5-4.5% target range. At the last meeting March 19, The central bank hiked rates 100 bp to 14.25%, as expected, but noted that “In light of the continuation of the adverse scenario for inflation convergence, the heightened uncertainty and the lags inherent to the ongoing monetary tightening cycle, the Committee anticipates an adjustment of lower magnitude in the next meeting, if the scenario evolves as expected.” Next meeting is May 7 and the market is pricing in a 50 bp hike to 14.75%. After that, one last 25 bp hike to 15.0% is priced in for June 18.
EUROPE/MIDDLE EAST/AFRICA
South Africa reports March CPI data Wednesday. Headline is expected to fall three ticks to 2.9% y/y, while core is expected to fall two ticks to 3.2% y/y. if so, headline would be the lowest since November and move below the 3-6% target range. At the last policy meeting March 20, the bank kept rates steady at 7.5%. Governor Kganyago said “The world economy is experiencing extreme levels of uncertainty. Trade tensions have escalated, and longstanding geopolitical relationships are shifting abruptly. In these circumstances, the global economic outlook is unpredictable. Globally we do not know where policy will end up.” Its model showed the policy rate at 7.25% for end-2025 and 7.21% for end-2026, which roughly lines up with market pricing for one more 25 bp cut.
ASIA
Malaysia reports March CPI data Wednesday. Headline is expected to remain steady at 1.5% y/y. While Bank Negara does not have an explicit inflation target, low price pressures should allow it to cut rates this year if the economy slows too much. At the last policy meeting March 6, Bank Negara kept rates steady at 3.0%, as expected, and noted that noted that “The monetary policy stance remains supportive of the economy and is consistent with the current assessment of inflation and growth prospects.” The bank added that there are downside risks from a slowdown in Malaysia’s major trading partners, but Governor Abdul Rasheed Ghaffour said that the diversified economy and broad export base will help limit the impact from external shocks. Despite the bank’s upbeat outlook, the swaps market is pricing in 50 bp of easing over the next 12 months.
Singapore reports March CPI data Wednesday. Headline is expected to pick up two ticks to 1.1% y/y, while core is expected to pick up a tick to 0.7% y/y. While the Bank Monetary Authority of Singapore does not have an explicit inflation target, low price pressures should allow it to easy policy again this year if the economy slows too much. At last week’s policy meeting, the MAS loosened policy for the second straight meeting by reducing “slightly” the slope of its S$NEER trading band whilst keeping the width and midpoint unchanged. It noted that “There are downside risks to Singapore’s economic outlook stemming from episodes of financial market volatility and a sharper-than-expected fall in final demand abroad. A more abrupt or persistent weakening in global trade will have significant ramifications on Singapore’s trade-related sectors, and in turn, the broader economy.”
Bank Indonesia meet Wednesday and is expected to keep rates steady at 5.75%. At the last meeting March 19, the bank left rates steady at 5.75%. Governor Perry Warjiyo reiterated that “while there is still room for interest rate cuts, global conditions have yet to allow it.” Bloomberg consensus sees one 25 bp cut in Q2 followed by one 25 bp cut in Q4. However, much will depend on how the rupiah is trading as ongoing weakness remains a concern for the central bank.
Korea reports Q1 GDP Thursday. Growth is expected to remain steady at 0.1% q/q, while the y/y rate is expected at 0.0% vs. 1.2% in Q4. Last week, Bank of Korea kept rates steady at 2.75%, as expected, but warned that growth has weakened more than expected due to US trade policy and domestic political uncertainty. It stressed that downside risks have increased significantly since February and so it will continue to maintain a policy bias towards more rate cuts. The swaps market is pricing in 50 bp of further easing over the next 12 months that would see the policy rate bottom near 2.25%.
