EM FX was mostly softer last week despite broad dollar weakness against the majors. INR, PLN, and CZK outperformed while CLP, COP, and ZAR underperformed. This week will be key for global markets. Not only do we get reciprocal tariffs on Wednesday, but we also get important U.S. data throughout the week that culminates in the jobs report Friday. We believe the data will surprise to the upside, which would give the dollar a much-needed boost and keep downward pressure on EM FX.
AMERICAS
Colombia central bank meets Monday and is expected to keep rates steady at 9.5%. However, the market is split as about a third of the analysts polled by Bloomberg look for a 25 bp cut to 9.25%. At the last meeting January 31, the bank delivered a hawkish surprise and kept rates steady at 9.5% vs. an expected 25 bp cut. It was a split 5-2 vote, with the two dissents in favor of 25 bp and 50 bp cuts. The bank cited “fiscal uncertainty and a volatile exchange rate” as reasons for the hold, adding that “External financial conditions have tended to become more restrictive with the new US government’s policies on trade, energy and migration, which could have inflationary effects.” Since then, inflation has come in higher than expected and so we look for steady rates this week. Central bank minutes will be released Thursday.
Peru reports March CPI data Tuesday. Headline is expected at 1.04% y/y vs. 1.48% in February. If so, it would be the lowest since May 2018 and nearing the bottom of the 1-3% target range. At the last meeting March 13, the central bank kept rates on hold at 4.75% for the second straight time. It noted that risks to the global economy have risen “due to the high uncertainty associated with the impact of restrictive measures to foreign trade. In that context, high volatility in financial markets is being observed.” Next meeting is April 10 and if disinflation continues, the bank may resume its easing cycle. Core inflation will be key.
EUROPE/MIDDLE EAST/AFRICA
Poland reports March CPI data Monday. Headline is expected to pick up two ticks to 5.1% y/y. If so, it would be the highest since December 2023 and would move further above the 1.5-3.5% target range. National Bank of Poland then meets Wednesday and is expected to keep rates steady at 5.75%. At the last meeting March 12, the bank kept rates steady and reiterated that “inflation this year will remain markedly above the NBP inflation target.” Governor Glapinski added “the inflation target is a compass for monetary policy. This compass clearly now shows that there’s no basis to change interest rates.” Despite the hawkish comments, the swaps market is pricing in 100 bp of easing over the next 12 months. This looks too optimistic considering given the inflation trajectory.
Turkey reports March CPI data Thursday. Headline is expected at 38.75% y/y vs. 39.05% in February, while core is expected at 38.60% y/y vs. 40.21% in February. If so, headline would be the lowest since June 2023. However, the central bank’s easing cycle has been complicated by heightened political risks. It has cut rates 250 bp at the past three meetings. Next central bank meeting is April 17 and it may have to hold rates in order to help support the lira. The swaps market is pricing in 200 bp of easing over the next three months and 1050 bp of total easing over the next 12 months, but much will depend on how the political uncertainty develops.
Czech Republic reports March CPI data Friday. Headline is expected to fall two ticks to 2.5% y/y. If so, it would be the lowest since August and would move further within the 1-3% target range. At the last meeting March 26, the central bank kept rates steady at 3.75% and cautioned that “inflationary risks persist, requiring continued slightly restrictive monetary policy.” Governor Michl said “We can’t rule anything out. We are keeping all options on the table, including a further reduction in rates, as well as a rate hike.” The bank’s updated inflation forecasts suggest the bar for additional rate cuts is high, as it sees inflation slightly above the 2% target throughout 2025 before falling to target in 2026. However, the swaps market is pricing in 50 bp of total easing over the next 12 months.
ASIA
China reports official March PMIs Monday. Manufacturing is expected to pick up two ticks to 50.4 while non-manufacturing is expected to pick up two ticks to 50.6. Caixin reports its manufacturing PMI Tuesday and is expected to fall two ticks to 50.6. It then reports its services and composite PMIs Thursday and is expected to pick up a tick to 51.5. The economic data have been stabilizing in recent months but the cautious nature of stimulus measures seen so far argue against a strong rebound in 2025.
Korea reports March CPI data Wednesday. Headline is expected to fall a tick to 1.9% y/y, while core is expected to remain steady at 1.8% y/y. If so, headline would decelerate for the second straight month to just below the 2% target. At the last meeting February 25, Bank of Korea cut rates 25 bp to 2.75%, as expected. The decision was unanimous, but only 2 board members saw another cut over the next three months while 6 saw steady rates. The bank said that the cut was made to “mitigate downward pressure on the economy” and cut its 2025 growth forecast a couple of ticks to 1.5%. Governor Rhee said “The outline of Trump’s tariff policies has now largely taken shape, and that prompted the downgrade from January.” The swaps market is pricing in only 25 bp of further easing over the next 12 months that would see the policy rate bottom near 2.5%. Next meeting is April 17 and a hold then seems likely.
Philippines reports March CPI data Friday. Headline is expected to fall a tick to 2,0% y/y. if so, it would be the lowest since September and right at the bottom of the 2-4% target range. 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 150 bp of total easing over the next 12 months that would see the policy rate bottom near 4.25%. Remolona also confirmed a cut in the reserve requirement is coming. The bank last cut reserve requirements by 250 bp in October. Next meeting is April 10 and if disinflation continues, a 25 bp cut then seems likely.
Thailand reports March CPI data Friday. Headline is expected at 1.08% y/y vs. 1.0% in February, while core is expected at 1.00% y/y vs. 0.99% in February. if so, headline would be right at the bottom of the 1-3% target range. At the last meeting February 26, Bank of Thailand delivered a dovish surprise and cut rates 25 bp to 2.0% vs. an expected hold. The bank noted that “The Thai economy is expected to expand at a slower pace than previously estimated due to the industrial sector being pressured by structural problems and competition from foreign products, as well as higher risks from trade policies of major economies.” Assistant Governor Sakkapop said that the 2% rate represents neutral policy, adding “The bar will be high next time.” The swaps market is now pricing in 50 bp of easing over the next 12 months that would see the policy rate bottom near 1.5% vs. 1.75% seen at the start of the month. Next meeting is April 17 and a hold then seems likely.
