Frontier FX was mostly firmer last week as the dollar was broadly weaker last week due to a combination of weak US data and repricing of Fed easing expectations. RSD, UYU, and KZT outperformed while JMD, GHC, and BDT underperformed. While most Fed officials are willing to wait and see before cutting, we see growing evidence of a US slowdown. This week brings key June data that should confirm this thesis and so Frontier FX should continue to gain at the expense of the dollar.
EUROPE/MIDDLE EAST/AFRICA
Kenya reports June CPI data Monday. Inflation decelerated in May to 3.8% y/y vs. 4.1% in April and remains below the midpoint of the 2.5-7.5% target range. At the last meeting June 10, the central bank cut rates 25 bp to 9.75% vs. 50 bp expected. Governor Thugge said “The committee concluded that there was scope for a further easing of the monetary policy stance to augment the previous policy actions aimed at stimulating lending by banks to the private sector and supporting economic activity.” Next meeting is July 17 and if inflation continues to cool, the bank is likely deliver another cut then.
Kazakhstan reports June CPI data Tuesday. Headline came in at 11.3% in May, the highest since September 2023 and moved further above the 5% target. At the last meeting June 5, the central bank kept rates steady at 16.5% and said “The current high inflation requires maintaining moderately tight monetary conditions for a longer period of time than previously assumed.” The bank added that it’s “highly probable that the base rate will remain at the current level until the end of 2025.” Next meeting is July 11 and another hold seems likely. However, if inflation continues to accelerate, a hawkish surprise then is possible.
ASIA
Sri Lanka reports June CPI data Monday. Headline is expected at 0.0% y/y vs. -0.7% in May. If so, it would be the highest since January. 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 risks lingering, we believe another cut is possible.
Pakistan reports June CPI data Wednesday. At the last meeting June 16, the State Bank of Pakistan kept rates steady at 11.0% and noted that “economic growth is picking up gradually and is projected to gain further traction next year, supported by the still-unfolding impact of earlier policy rate cuts.” It also highlighted upside risks to inflation. Since then, inflation accelerated to 3.5% y/y in May, the highest since December but still well below the 6% target. For now, we see steady rates being maintained.
Vietnam reports June CPI data next weekend. Headline rose 3.24% y/y in May, the highest since January but still well below the 4.5% target. The central bank has kept the policy rate at 4.5% since the last 50 bp cut in June 2023. However, the bank continues to rely on non-market policies such as deposit and lending rate caps and credit growth ceilings. This has led the IMF to push for further modernization of the monetary policy framework, as well as great flexibility in the exchange rate.
