EM FX was mostly firmer last week as the dollar came under broad-based pressure. The CEE currencies outperformed while ARS, TWD, and TRY underperformed. Ongoing concerns about the U.S. economic outlook contributed to the dollar selling, as did several rounds of back-tracking by the U.S. on tariffs. That said, this week’s inflation data is likely to take a back seat to the JOLTS data. The Fed blackout period has begun but Chair Powell left us with the same cautious message he’s been giving since the January FOMC meeting.
AMERICAS
Brazil reports February IPCA inflation and January consolidated budget data Wednesday. Headline is expected at 5.06% y/y vs. 4.56% in January. If so, it would be the first acceleration since November to the highest since September 2023 and above the 1.5-4.5% target range. At the last policy meeting January 29, the central bank hiked rates 100 bp for the second straight time to 13.25% and said a similar hike would be seen at the next meeting March 19. Looking ahead, the swaps market is pricing in 175 bp of total tightening over the next six months that would see the policy rate peak near 15.0%.
Peru central bank meets Thursday and is expected to keep rates steady at 4.75%. However, a couple of analysts polled by Bloomberg look for a 25 bp cut to 4.5%. At the last meeting February 13, the bank left rates steady after cutting rates 25 bp to 4.75% at the January 9 meeting. It justified a more cautious stance by noting that “Uncertainty remains over the impact of trade policies, as well as risks derived from international conflicts.” Since last fall, the bank has been cutting rates at every other meeting. February headline came in at 1.48% y/y vs. 1.85% in January and was the lowest since September 2018 and near the bottom of the 1-3% target range. As such, we see risk of a 25 bp cut at this meeting.
EUROPE/MIDDLE EAST/AFRICA
Hungary reports February CPI data Tuesday. Headline is expected to fall two ticks to 5.3% y/y. If so, it would be the first deceleration since September but would remain well above the 2-4% target range. Central bank minutes will be published Wednesday. At that February 25 meeting, the bank kept rates steady at 6.5%. Deputy Governor Virag said then that “A cautious, patient, stability-oriented policy continues to be warranted,” adding that the bank will raise the top end of its 2025 inflation forecast from 4.1% in its updated macro forecasts that come at the March 25 meeting. Despite the hawkish stance, the swaps market is still pricing in 25 bp of easing over the next six months.
National Bank of Poland meets Wednesday and is expected to keep rates steady at 5.75%. Minutes to the February 5 meeting will be published Friday. At that meeting, the bank kept rates steady and reiterated that “in the coming quarters inflation will remain markedly above the NBP inflation target.” Governor Glapinski said he saw no grounds to change interest rates now as inflation is forecast to be around 5% in H1. Despite the hawkish comments, the swaps market is pricing in 75 bp of easing over the next 12 months. This looks optimistic considering given the inflation trajectory. Poland reports February CPI data Friday. Headline is expected to remain steady at 5.3% y/y. If so, it would remain at the highest since December 2023 and well above the 1.5-3.5% target range.
Israel reports February CPI data Friday. Headline is expected at to fall a tick to 3.7% y/y. If so, it would remain above the 1-3% target range. 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.
ASIA
China reports February money and loan data sometime this week. New loans are expected at CNY1.22 trln vs. CNY5.13 trln in January, while aggregate financing is expected at CNY2.7 trln vs. CNY7.057 trln in January. In recent years, lending tends to jump in January and then fall back in February and so we expect this pattern to continue this year. With deflationary risks persisting, we expect further easing by the PBOC this year. Over the weekend, February CPI came in three ticks lower than expected at -0.7% y/y vs. 0.5% in January and was the deepest deflation seen since January 2024.
India reports February CPI data Wednesday. Headline inflation is expected at 3.94% y/y vs. 4.31% in January. If so, it would be the lowest since August 2024 and near the enter of the 2-6% target range. 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 nine months that would see the policy rate bottom at 5.75%.
