EM FX was mostly softer last week despite the dollar’s mixed performance against the majors. PHP, KRW, and INR outperformed while ZAR, CLP, and COP underperformed. The data this week are secondary, with markets instead focusing on the whether the Trump administration softens its tariff plans in the face of market turmoil. For now, they are showing no signs of backing down and so last week’s price action is likely to carry over into this week. For FX, that means JPY and CHF are likely to continue outperforming at the expense of the growth-oriented majors and EM FX as global growth concerns mount.
AMERICAS
Chile central bank releases its minutes Monday. At that March 21 meeting, the central bank kept rates steady at 5.0% for the second straight meeting and noted that “The overall background information at hand points to an inflationary outlook that continues to face significant risks, stressing the need for caution.” Despite the hawkish guidance, the swaps market is pricing in another 75 bp of easing over the next 12 months. Chile then reports March CPI data Tuesday. Headline is expected at 4.9% y/y vs. 4.7% in February. If so, it would match the cycle high from January and move further above the 2-4% target range.
Colombia reports March CPI data Monday. Headline is expected at 5.19% y/y vs. 5.28% in February, while core is expected at 5.26% y/y vs. 5.44% in February. At the last meeting March 31, the central bank kept rates steady at 9.5% for the second straight meeting and noted that “The decision not to change the interest rate maintains a cautious monetary stance pending new information over the coming months to determine the possibility of further interest rate cuts.” However, it was a 4-3 split vote and so the bar for the next cut is quite low. Indeed, the swaps market is pricing in another 150 bp of easing over the next 12 months.
Mexico reports March CPI data Wednesday. Headline is expected at 3.79% y/y vs. 3.77% in February, while core is expected to remain steady at 3.65% y/y. Banco de Mexico releases its minutes Thursday. At that March 27 meeting, the bank cut rates 50 bp to 9.0%, as expected. The decision was unanimous vs. a split 4-1 vote for the 50 bp cut at the previous meeting February 6. The bank said more cuts of “similar magnitude” are possible while noting that “The changes in economic policy by the new U.S. administration have added uncertainty to the forecasts. Its effects could imply inflationary pressures on both sides of the balance.” Given these dovish signals, the swaps market is now pricing in 150-175 bp of total easing over the next 12 months.
Peru central bank meets Thursday and is expected to keep rates steady at 4.75%. At the last meeting March 13, the bank kept rates steady at 4.75% for the second straight meeting. The bank saw inflation accelerating back to 2% after the March low and added that economic activity is near potential. However, it warned of increasing global risks. Bloomberg consensus sees only one more 25 bp cut in 2025.
Brazil reports March IPCA inflation Friday. Headline is expected at 5.45% y/y vs. 5.06% in February. 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% and noted that “The current scenario is marked by additional de-anchoring of inflation expectations, high inflation projections, resilience on economic activity and labor market pressures, which requires a more contractionary monetary policy.” It added that it would likely deliver a smaller hike at the next meeting May 7. The swaps market is pricing in 50 bp of tightening over the next six months.
EUROPE/MIDDLE EAST/AFRICA
Bank of Israel meets Monday and is expected to keep rates steady at 4.5%. At the last meeting February 24, Bank of Israel kept rates steady at 4.5% and stated that “In view of the continuing war, the Monetary Committee’s policy is focused on stabilizing markets and reducing uncertainty, alongside price stability and supporting economic activity.” The bank added that “The interest rate path will be determined in accordance with the convergence of inflation to its target, continued stability in the financial markets, economic activity, and fiscal policy.” The swaps market is pricing in steady rates over the next three months followed by 25 bp of easing over the subsequent three months, followed by another 50 bp over the subsequent six months.
Hungary reports March CPI data Tuesday. Headline is expected at 5.0% y/y vs. 5.6% in February. If so, it would decelerate for the first time since September but would remain well above the 2-4% target range. Central bank minutes will be released Wednesday. At that March 25 meeting, the bank left rates steady at 6.5% and new Governor Varga warned “Maintaining tight monetary conditions is warranted. The key interest rate can stay at its current level for a sustained period.” Despite the hawkish guidance, the swaps market is pricing in 25-50 bp of easing over the next 12 months.
ASIA
China reports March money and loan data sometime this week. New loans are expected at CNY3.0 trln vs. CNY1.0 trln in February, while aggregate financing is expected at CNY4.8 trln vs. CNY2.2 trln in February. March CPI and PPI data will be reported Thursday. CPI is expected at 0.1% y/y vs. -0.7% in February, while PPI is expected at -2.3% y/y vs. -2.2% in February. Overall, China’s economy is still struggling to escape deflationary risks. To escape the debt-deflation loop, Chinese policymakers need to ramp up fiscal measures to boost consumption. China's consumption-to-GDP ratio is very low at round 40%, due to high household savings, low household income levels, and high levels of household debt.
Monetary Authority of Singapore meets sometime this week and is expected to leave policy steady. At the last meeting January, the MAS loosened policy by reducing “slightly” the slope of its S$NEER trading band whilst keeping the width and midpoint unchanged. This was the first time it had eased since 2020. The MAS cuts its core inflation forecast for this year to 1-2% vs. 1.5-2.5% previously and noted that core “has moderated more quickly than expected and will remain below 2% this year, reflecting the return to low and stable underlying price pressures.” GDP data is typically reported at the same time. Q1 growth is expected at 4.9% y/y vs. 5.0% in Q4.
Indonesia reports March CPI data Tuesday. Headline is expected at 1.16% y/y vs. -0.09% in February, while core is expected at 2.51% y/y vs. 2.48% in February. If so, inflation would remain well below the 2-4% target range. At the last meeting March 19, Bank Indonesia 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.
Reserve Bank of India meets Wednesday and is expected to cut rates 25 bp to 6.0%. At the last meeting February 7, Reserve Bank of India cut rates 25 bp to 6.25% and noted it would “continue with the neutral monetary policy stance and remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.” This was the first meeting under new Governor Malhotra and marked the first rate cut since 2020 after holding rates at 6.50% for almost two years. The swaps market is pricing in 25 bp of further easing over the next three months followed by another 25 bp over the subsequent three months.
Philippine central bank meets Thursday and is expected to cut rates 25 bp to 5.5%. At the last meeting February 13, the central bank delivered a hawkish surprise and kept rates steady at 5.75% vs. an expected 25 bp cut. Governor Remolona stuck to his previous guidance for a total 50 bp of easing this year and added that a cut is possible at the next meeting in April. The swaps market is pricing in 125-150 bp of total easing over the next 12 months. Remolona also confirmed a cut in the reserve requirement is coming, which it last cut by 250 bp back in October.
