Frontier FX was mostly firmer last week as the dollar came under broad-based pressure. RSD, HRK, and KZT outperformed while LKR, JMD, and TTD 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.
EUROPE/MIDDLE EAST/AFRICA
Serbia reports February CPI data Wednesday. In January, headline picked up three ticks to 4.6%, the highest since April 2024 and above the 1.5-4.5% target range. The central bank then meets Thursday and is expected to keep rates steady at 5.75%. It has since been on hold since the last 25 bp cut in September. Similar to the statement from its January meeting, the bank said the February 13 hold was due to “the rise in geopolitical tensions, stronger protectionism and fragmentation of the global market.” However, the bank added that inflation should slow around the middle of the year due to the impact of “restrictive” monetary conditions and weaker global price pressures. This suggests it may resume easing in H2.
Romania reports February CPI data Thursday. Headline is expected at 4.80% y/y vs. 4.95% in January. If so, it would be the second straight deceleration to the lowest since October but would remain well above the 1.5-3.5% target range. This would justify another hold at the next meeting April 7. At the last meeting February 14, the bank kept rates steady. Governor Isarescu said “We are prepared, of course, for capital outflows or more like decisions not to renew existing credit lines, a decline in inflows which would, of course, impact the FX market. We are ready to cover any shortfalls, but that’s why I say it’s not the time to consider a rate cut. In the current circumstances, it might sound like an invitation to weaken the currency.”
ASIA
State Bank of Pakistan meets Monday and is expected to cut rates 50 bp to 11.50%. However, the market is all over the place. Of the 35 analysts polled by Bloomberg, 7 see no change, 16 see a 50 bp cut, 11 see a 100 bp cut, and 1 sees a 200 bp cut. At the last meeting January 27, the central bank cut rates 100 bp to 12.0% and Governor Ahmad said that falling inflation means “we have ample room to cut rates.” He added that “Our real interest rates in the short term are quite positive and that is providing us with flexibility for rate cuts.” February CPI came in at 1.5% y/y vs. 2.4% in January. It was the lowest reading in data going back to 2017 and moves further below the 6% target. As such, we see risks of a dovish surprise this week.
