• BCRA to raise quickly next time CPI inflation comes at 7.0% m/m or close
• BCRA needs to keep monthly effective rate and crawling peg closely in step with inflation to reduce export delay and portfolio dollarization incentives
• Unsustainable deficit+debt dynamics keep BCRA from pursuing positive real rates or depreciation
• BCRA can only passively respond to rising inflation, this status quo likely remains until regime change

The BCRA's future monetary policy rate decisions will remain bounded by the evolution of effective inflation, expected inflation for the short-term, and the interest rate limitations the central bank faces if it is to keep the official real exchange rate steady in the coming year, which is something the bank is paying close attention to. The BCRA hiked its benchmark 28-day bill rate by 300bps to 78.0% in mid-March to accommodate the monthly effective rate at 6.5%, up from 6.3%, in what was the first move for the rate since last September. The decision was taken following the release of a surprisingly high 6.6% m/m CPI inflation print for February and with market expectations of a similar reading for March. The BCRA is likely to raise another 200bps or 300bps if the CPI reading for March is close 7.0% m/m, unless high-frequency price trackers show a deceleration in early April.

Monetary policy has been passive for most of the past three years, sitting under the weight of massive fiscal dominance and past policy mistakes, and there are no prospects for this to change until the end of this government in December. To put it in short, the BCRA needs to keep its monthly effective benchmark rate and the official exchange rate crawling peg moving right in step with CPI inflation, and it doesn't have room to deviate much or for too long, which means monetary policy should be fairly predictable this year. The BCRA has slightly more room to delay rate cuts if inflation declines than it has room to delay rate hikes if inflation rises, but it seems very unlikely that inflation will decline this year anyway.

The dangerous inflation spiral and the massive real exchange rate appreciation that took place in 2021-22 put pressure on the BCRA to raise nominal interest rates and push the pace on the crawling peg when inflation rises. If the crawling peg lags versus inflation, the government would be increasing the incentives for exporters to withhold sales abroad and wait for an inevitable devaluation, while also reducing competitiveness (most exporters are forced to convert their FX income into local currency). This would add to an FX market crisis that has the government burning through its low FX reserves. However, if the nominal crawling peg is to move faster, interest rates also need to rise in step to avoid creating incentives to delay exports. Interest rates that at least match inflation are also key to discourage portfolio dollarization through parallel exchange rates, which are an increasingly important benchmark for price-setting practices.

The BCRA also needs to be careful of not going too high with real rates because it would contribute to the explosiveness of public debt dynamics and inflation. With the government running a fiscal deficit of more than 4.0% of GDP every year despite having virtually no access to market financing, the deficit has been covered by a mix of inflation tax and central bank balance sheet deterioration. The higher the real interest rate goes, the faster the deterioration of the central bank's balance sheet and the growth of the federal government's short-term debt. However, the evolution of market financing for the government and the BCRA's remunerated liabilities suggests that the room to get financing through these avenues is pretty much closed now, which only leaves inflation tax as an option. In this scenario, nominal interest rate hikes are inflationary as long as there are no drivers to increase the private sector's willingness to finance the government.

• MPC meeting: Apr 28-29, 2026
• Current policy rate: 14.75%
• EmergingMarketWatch forecast: 25-bp cut (to 14.50%)

Elevated uncertainties stemming from the Middle East conflict cloud the Copom's coming moves, leading the committee to signal that its future decisions will depend on incoming data, according to the minutes for its Mar 17-18 policy meeting. After cutting the Selic for the first time in March -- by 25 bps to 14.75% in the first cut since April 2024 -- the Copom said that the pace and duration of the cycle will depend on future data. In our view, the committee is likely to continue easing at a gradual pace, potentially with another 25-bp cut at the next sitting in April, although we do not rule out a pause should economic data point to a deterioration in inflation and inflation expectations.

In a context of heightened external uncertainty, stemming both from the Middle East conflict and changes in US economic policy, the Copom noted that inflation expectations have risen, increasing the cost of disinflation and requiring a more restrictive and cautious monetary policy stance, which is likely to affect the magnitude of cuts in coming meetings.

On the domestic front, the restrictive monetary policy continues to show its effects, with economic activity decelerating in Q4 2025, despite a resilient labor market and real wage gains. The Copom noted that inflation dynamics were benign prior to the conflict, supported by a stronger exchange rate, stable commodity prices, and tight monetary policy. However, due to higher international oil prices, the Copom raised its 2026 inflation forecast to 3.90% from 3.40% at the previous meeting. The Copom's forecast remains more optimistic than that of analysts surveyed by the BCB, who raised their forecast to 4.10% in the latest Focus Report, but more pessimistic than the government's forecast of 3.70%. Meanwhile, 12-month inflation slowed to 3.81% y/y in February, falling below the 4.00% threshold for the first time since May 2024.

Overall, heightened external uncertainties and the concrete effect of pass-through of higher oil prices to domestic inflation have led the Copom to adopt a wait-and-see approach in its latest minutes. In our view, the conflict is likely to reduce the pace and magnitude of the easing cycle, but does not yet appear sufficient to fully halt the adjustment yet. We therefore expect the Copom to deliver another 25-bp cut at the April meeting, although incoming data will be critical in shaping coming decisions, and a sharp deterioration in inflation or expectations could prompt a pause in the cycle. The government is attempting to mitigate the domestic impact of higher oil prices through measures such as export controls and subsidies to importers, which could support the easing cycle. However, these measures also increase fiscal risks, which may affect inflation expectations and, consequently, the path of Selic cuts.

• Next MPC meeting: May 7, 2026
• Current policy rate: 3.50%
• EmergingMarketWatch forecast: hold

Rationale: The CNB will continue to keep interest rates unchanged, at least for now, as it sees the impact from the Iran war as limited. While the tone of the post-meeting message was hawkish, and any traces of fine-tuning monetary policy are now gone, it doesn't ring the alarm bell, either. Risks to inflation are perceived as balanced, and the reduction in the regulated component of energy prices at the beginning of 2026 is considered a large enough buffer for rising oil prices. CNB governor Michl said that all options remained open, but at least for now the mood on the board appears not to imply that monetary tightening is necessary.

We suppose the latest news coming from Washington related to the war with Iran sounds encouraging, though we feel it is far too early to celebrate. While Iran has a strong interest for military action to stop, it now has an ace in its sleeve regarding traffic through the Strait of Hormuz, and it will not hesitate to use it. Furthermore, we don't believe markets have fully priced in the damage to LNG infrastructure in Qatar, and the resulting externalities, like the impact on fertilizer production, which is directly linked to food prices. Thus, we believe we are yet to see second-round effects from the war showing up, and these are to show up most likely in Q2. There is also the potential impact on energy prices, as lower natural gas exports from the Persian Gulf will keep prices higher, and this will inevitably raise Czech energy prices as well, though likely not as much as in 2022.

In any case, the CNB sounded hawkish even when only domestic factors were considered, as these were outlined as pro-inflationary. Credit growth remains elevated, the labour market is relatively tight, and the property market has not started cooling down yet. We saw even dovish board members, like Jan Frait, remark that domestic factors alone do not imply lower interest rates. With anti-inflationary pressure from import prices now gone, there is nothing to convince the CNB board that it can afford to loosen monetary policy in the near future.

Thus, we expect that stable interest rates will persist, and our base scenario no longer envisages rate cuts in 2026. Even if oil prices return to their level from end-February, natural gas prices will remain elevated for an extended period of time, as the damage to LNG infrastructure will take years to repair. All this is under the assumption that the Strait of Hormuz will reopen, and traffic will return to pre-war levels, which we don't consider that likely. In any case, the CNB can afford to hold rates if energy and food prices do not rise too quickly. Our expectation is that as long as headline CPI inflation remains within the tolerance band (2%+/-1pp), the CNB will refrain from rate hikes. As far as rate cuts are concerned, we believe these have been postponed for 2027.

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Further Reading:

CNB board statement from latest MPC meeting, Mar 19, 2026

Post-meeting press conference, Mar 19, 2026 (in Czech)

Q&A after the latest MPC meeting, Mar 19, 2026

Minutes from the latest MPC meeting, Mar 19, 2026

Monetary Policy Report, February 2026

Macroeconomic forecast, February 2026

Meeting with analysts, Feb 6, 2026

CNB board profile

CNB board members' presentations, articles, interviews (Czech)

CNB board members' presentations, articles, interviews (English)

• Next MPC meeting: April 2, 2026
• Current policy rate: 19.5%
• EmergingMarketWatch forecast: 19.5%

The MPC will hold an interest rate meeting on April 2 and we rule out a rate cut as it will send the wrong signal amidst a sell-off and elevated regional and global uncertainty. A rate cut at this time will weaken the pound further and stoke inflationary pressures. Consumer inflation rose sharply in February - the month before the war in Iran triggered capital outflows and disrupted global oil and gas supplies - while the government raised fuel prices by 16% in March. While global oil prices have moderated this week and capital outflows actually reversed, we think the outlook remains too uncertain and the MPC will decide to maintain its current policy stance. A rate increase is also not off the table, depending on Trump's ultimatum - we think a US strike on Iranian power assets would trigger a massive shock across the region, which will have severe consequences for Egypt - a net food and energy importer, as well as an attractive market for portfolio investments.

Overall, we think that Egypt has the resources and the tools to absorb a short-term shock, and this is not the first time CBE is confronted with capital outflows triggered by major external shock. In fact, this is the third such shock in less than a year, and CBE's track record has been robust. Should the conflict persist or intensify, further depreciation of the pound appears inevitable. We think the MPC may step in with a rate hike of at least 100bps if the pound weakens beyond USD/EGP 53.

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Further, a prolonged war will be a major drag on the economy and will surely force the MPC to reverse the monetary easing cycle. Egypt's foreign reserves have been boosted by tourism and portfolio inflows (both vulnerable to the war in Iran), while Suez Canal revenues have just showed signs of recovery before the war dealt a serious blow to maritime activity in the region. The spike in oil and gas prices is another issue for Egypt, which has become heavily reliant on expensive LNG imports to meet its energy needs, opening a large deficit in the oil merchandise trade balance.

Monetary Policy Committee Statement

Monetary Policy Review

Monetary Policy Committee Meeting Schedule

• Next MPC meeting: Apr 28, 2026
• Current policy rate: 6.25%
• EmergingMarketWatch forecast: Hold
• Rationale: MPC appears mostly concerned with impact of Mid-East conflict on forint exchange rate

We expect that the MPC will keep the policy rate on hold in April, given the revision of its policy stance in March. The MPC kept the base rate unchanged at 6.25% in March after the 25bps cut in February despite benign inflation data for February. The hold decision was based on the increased inflationary risks due to the conflict in the Middle East, as the MPC flagged increased financial market volatility. The March MPC decision coincided with the update of the National Bank of Hungary's (NBH) forecasts, which showed deterioration of the inflation outlook, in our opinion mainly because of the rising global energy prices. We think the hold decision, however, mainly reflected the MPC concerns on the forint exchange rate as it concentrated on this factor in its rate talk, highlighting that financial market stability was of crucial importance to anchor inflation expectations and foster price stability. NBH governor Mihaly Varga even floated the prospects for rate hikes in a background discussion after the March MPC meeting, saying that all options were on the table. We consider this to be a verbal intervention at this point, aimed to stabilise downside pressure on the forint exchange rate. Varga also emphasised on the improved stability of the economy in comparison to the previous energy crisis in 2022, in our view also aiming to calm markets about the ability to manage the situation. In another move with the same purpose, the NBH had decided earlier in March to provide optional forex liquidity directly to energy importers in order to avoid prospective disturbances on the forex market due to the rising energy prices.

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The monetary policy guidance ostensibly shifted in March as the MPC skipped to say that rates will be decided on a month-by-month basis, which we see as a sign that it will assume a wait-and-see stance in contrast to the easing mode introduced in Dec 2025. In addition, the statement's wording highlighted the increased inflationary risks, also showing a shift away from rate cuts in the immediate future. It maintained the other elements of the guidance, most importantly the need to keep monetary conditions tight and the real interest rate - positive, for the sake of fostering disinflation. It added that monetary policy will remain cautious and data-driven going forward, suggesting that financial market stability will be of key importance for the future rate decisions.

The average inflation forecast for 2026 was adjusted up by 0.6pps to 3.8% and the 2027 inflation forecast - up by 0.4pps to 3.7%, according to the abridged projections from the Q1 Inflation Report. The NBH expected inflation to slow down to 3.0% on average in 2028, matching its mid-term inflation forecast. The rise in energy prices will offset the favourable impact from historically weak pricing behaviour on the domestic market in the beginning of this year, the NBH commented. Its forecast additionally took into account the extended effect of the margin caps, saying that the extension resulted in lower average inflation in 2026 but higher average inflation in 2027. More precisely, the NBH expected inflation to start rising as of March due to the higher energy prices, although their impact will be temporarily suppressed by the fuel price ceiling. Inflation will exceed the 1pp tolerance band around the inflation target as of Q3 and will return to the target in H2/2027, it added.

The recovery in growth will be hampered by the intensification of geopolitical tension, the NBH said. Its growth projection was therefore revised down to 1.7% for 2026, a significant 0.7pps lower than the previous forecast from Dec 2025. GDP growth was seen to recover to 3.0% in 2027, albeit still weaker than the previous expectations. The NBH projected GDP growth to remain mostly stable at 2.9% in 2028. The deterioration of the growth outlook was linked to the rising energy prices with a dampening effect on external demand as well, the NBH said. The domestic economy will be still supported by household consumption, lifted by the government's support measures, as well as by the new production capacities in the industry.

Post-meeting MPC statement from March rate-setting meeting

Background presentation of NBH governor Varga after March rate-setting meeting

Minutes from February MPC rate meeting

Inflation Report - Q4/2025

MPC meeting calendar 2026

• Next MPC Meeting: 6-8 April, 2026
• Current Policy Rate: 5.25%
• Last decision: Hold (Feb 6, 2026)
• Our forecast: Hold

We expect the Reserve Bank of India (RBI) to leave its repo policy rate unchanged at 5.25% at its upcoming meeting. While the global oil supply shock and a depreciating rupee have heightened inflation and external sector risks, the central bank is likely to hold rates steady to assess the impact of the Middle East crisis. At the previous policy meeting, the RBI kept its key rate unchanged following a 25bps cut in December, with all members voting for a pause. However, one member, Ram Singh, advocated shifting the policy stance from neutral to accommodative. We believe any easing bias is unlikely to emerge at the April meeting.

That said, we do not rule out the possibility of a rate hike in the second half of the year if the US-Israel conflict persists, as the RBI may seek to anchor inflation expectations and curb rupee depreciation amid foreign portfolio outflows. Although the conflict could weigh on economic activity, partly due to reduced gas supplies to industries and power plants, along with second-round effects, the central bank is likely to prioritize price stability over growth concerns.

However, much will depend on the duration of the Middle East crisis. For now, we believe the RBI is likely to be less concerned about inflation, given that petrol and diesel prices have remained stable since the onset of the conflict, as oil marketing companies have largely absorbed the impact of higher global oil prices.

Inflation environment

CPI inflation accelerated to 3.2% y/y in February, up from 2.75% y/y in January. Nevertheless, the print remained well below the RBI's 4% (+/-2%) target. In February, the central bank revised its inflation forecast, raising FY26 projection to 2.1% from 2.0% estimated earlier. It also projected a steady uptrend over the coming quarters: 3.2% in Q4 FY26, 4.0% in Q1 FY27, and 4.2% in Q2 FY27. This upward trajectory suggests that inflation may exceed the 4% target but remain within the 2%-6% tolerance band. However, these forecasts may no longer be fully relevant in light of the Iran war. As such, the RBI may revise its projections at the upcoming April policy meeting.

GDP growth

Before the Middle East conflict, economic growth maintained its strong momentum, with high frequency indicators, such as vehicle sales, goods imports, and manufacturing and services PMIs, pointing to robust domestic demand. Exports too remained resilient, rising by 2.5% during Apr-Feb of FY26. As a result, the RBI in February upgraded its FY26 growth outlook, revising it from 7.3% to 7.4%. In the first three quarters of the current fiscal year, the economy expanded 7.7%, accelerating from 7.1% in the same period last year.

While the RBI expected growth to moderate but maintain strong momentum going into FY27, rising by about 7.0% in the first half (Apr-Sep), the Iran war could weigh on the economy. Most of the impact is likely to stem from reduced industrial output, as the government diverts limited gas supplies to households. Additionally, any pass-through of higher input costs to broader prices could dampen household spending. HSBC's flash composite PMI showed that the private sector grew at its weakest pace in over three years in March, with the print declining to 56.5 from 58.9 in February.

Exchange rate

The rupee has come under significant pressure in recent weeks from foreign portfolio outflows and rising import payments due to elevated global energy prices. Between March 1 and 25, overseas investors pulled out USD 13.4bn from the capital markets, primarily from equities. As of March 25, the local currency closed at 93.9775 against the US dollar, hovering near its record low of 93.98. The RBI has been intervening to slow the pace of rupee depreciation, which has weighed on its foreign exchange reserves. The reserves declined to USD 709.8bn as of Mar 13, falling by USD 18.7bn over the past two weeks. The rupee was already on a weaker footing going into 2026, having declined 5% against the dollar in 2025.

Meanwhile, trade deficit is expected to widen due to elevated global commodity prices, weighing on its current account position. The current account deficit stood at 1.3% of GDP in Q3 FY26.

Conclusion

Overall, we expect the RBI to extend its rate pause next month while maintaining a neutral policy stance. Despite rising inflation risks and a weakening rupee, it is likely to remain less hawkish compared with its regional peers, given the relatively muted price pressures. However, a prolonged Middle East crisis could prompt the central bank to tighten rates later this year.

• Next policy meeting: Apr 21-22
• Current policy rate: 4.75%
• Our forecast: Hold
• Last decision: Hold (Mar 16-17)
• Rationale: Elevated oil prices to exert pressure on exchange rate, inflation

Bank Indonesia has kept the key rate on hold for the last six meetings, after surprising markets three times in H2 2025 with rate cuts. The central bank has turned neutral as it no longer employs dovish rhetoric. The oil price shock following the war in Iran forced the BI to remain on hold in March and possibly abandon its dovish agenda for Q2.

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So far, the only tool to support GDP growth is improving the transmission of monetary policy into loan interest rates, so that bank lending gains pace. However, rate cuts are out of the question now as the rupiah breached the psychological threshold of USD/IDR 17,000 following the Iran war, though it has regained some ground since then.

We should note that CPI Inflation slightly exceeded the central bank's 2.5+/-1% target band, as it rose to 4.76% y/y in February, though it is likely to return to the target band in March as the base effect from the electricity tariff cuts in Jan-Feb 2025 expires. Core inflation remains firmly anchored to the central bank's target.

As a result, we think BI has largely turned neutral and abandoned its dovish stance. Further monetary policy will largely depend on how long oil prices remain elevated, as well as their transmission and second-round effects on inflation.

GDP growth

GDP growth accelerated to 5.39% y/y in Q4 from 5.04% y/y in Q3. Investment and private consumption were the main factors behind the stronger growth, while government spending also contributed. The BI has maintained its GDP growth forecast at 4.9-5.7%, remaining on the optimistic side.

We should note that the government will continue to boost public spending H1 2026 to support GDP growth, extending further the trend that started in H2 2025. The measures include speeding up the free lunch programme (MBG), as well as rolling over the placement of IDR 200tn government funds from the surplus budget balance (previously kept with the central bank) into commercial banks in a bid to boost lending.

Exchange rate stability

The rupiah has depreciated by about 1.5-1.6% against the USD since the beginning of the year, extending the downward trend after it lost 1.8% in 2025. The rupiah now trades in the USD/IDR 16,900-17,000 range, briefly surpassing the psychological threshold right after the Iran war started.

The BI governor stated that Bank Indonesia will continue to use its tools to keep the local currency stable. In fact, the BI regularly intervenes in the forex market through its so-called triple intervention, which includes purchases on the spot FX market, domestic non-deliverable forwards (DNDF) and buying government bonds on the secondary market.

We should note that BI's aggressive rate cuts in 2025 were also partly influenced by the Fed Funds rate cuts as well. Looking forward, the outlook now is for a much more stable environment with the Fed likely to cut by 50bps cumulatively in 2026.

Inflation environment

CPI inflation accelerated to 4.76% y/y in February from 3.55% y/y in January, breaching the upper end of the BI's 2.5+/-1% target band. This is large due to the base effect from the electricity tariff cuts for low-income households in Jan-Feb 2025. As a result, the central bank views the elevated headline inflation as temporary and expects it to return to its target band in March.

On the other hand, core inflation remains well within the BI's target band. The central bank expressed confidence that CPI inflation will remain under control and within the target band in 2026. This projection looks realistic, in our view, though we will have a clearer picture in March.

Once again, the main concern at present are the elevated oil prices and the question how long they will remain at these levels. So far, the impact is limited, but both first-round and second-round effects could boost inflation by 1.5-2.5pps this year if they sustain long enough.

Conclusion

Looking forward, we expect Bank Indonesia to keep the key rate on hold in April and focus on the rupiah's stability. We would not rule out potential rate hikes if inflation starts to gain pace with the transmission of the higher oil prices into food and fuel prices.

Further reading

Last MPC press release

Calendar of MPC meetings

• Next MPC meeting: March 26
• Current policy rate: 7.00%
• EmergingMarketWatch forecast: Hold

While we had constantly anticipated the CB would be cutting its Monetary Policy Rate (MPR) by 25bps on Thursday, despite a disappointing performance by CPI inflation in February and new uncertainty brought about by the war in Iran, we believe the March H1 print is just too much for the board to look beyond, forced now to extend the cycle's pause until May.

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We've noted the market isn't so sure about how the CB will act on Thursday. Experts polled by Citi in early May predicted a 25bps cut in March's sitting; however, the same poll showed the experts now predicting the cut will come until May, showing the impact on monetary policy expectations of the Iran conflict, in our view. This consensus is probably strengthened by the poor inflation data coming up from March H1. Still, we note projections were certainly mixed, showing a divided market, with much uncertainty about when the easing cycle will resume, rather than a confident consensus. Indeed, a recent poll suggested this much, with only 57% of the polled experts agreeing the CB will extend the cycle's pause on Thursday.

There were certainly reasons for the CB to extend the easing cycle's pause even before the latest disappointing print. CPI inflation accelerated to 4.02% y/y in February, in a disappointing development that broke a 7-month period with inflation within the CB's tolerance band. But this poor performance was left fully behind by the March H1 acceleration to 4.63%.

We note the dovish CB may minimize the disappointing performance of general inflation in February and March H1, noting the acceleration came almost fully behind fruit and vegetable prices. However, it's hard to see the board hang its hat on the pace of core inflation considering it has shown no clear deceleration, holding above 4.00% over the last 20 fortnights. Indeed, we insist the poor pace of core inflation clearly shows CPI inflation is on no path to converge to the CB's 3.00% target.

In this context, it'll be interesting to see how much the CB raises its CPI inflation forecast. In particular, it'll be crucial to see if the CB delays again its projection of when CPI inflation will converge with the CB's 3.00% target, although we doubt it.

Our expectation that the CB will hold its MPR at 7.00% on Thursday diverges from what we've heard from the Monetary Policy Council (MPC) over the past year or so, with the bulk of the CB's board maintain a stable dovish discourse, unwilling to pause its easing cycle in late 2025, despite poor performance by core inflation and unanticipated upward pressure. Indeed, the already worrying pace of core inflation in late 2025 was worsened in early 2026 by an imposition of higher taxes on sugary drinks and tobacco. Yet, the dovish Monetary Policy Council (MPC) said in its quarterly report presentation that they have enough data to assess these shocks had no 2nd-order effects. This is perhaps the only technical factor favoring a rate cut soon, considering the March H1 print did seem to suggest that the inflationary pressure from these higher taxes began to wear off.

In any case, even if we now believe the board will be pushed to hold its policy rate for one more sitting than it wants, we are confident the easing cycle will resume as soon as inflationary pressure dims.

Delaying the first cut of the year until Q2 might limit the easing the CB will be able to promote by year-end. Indeed, we now expect the CB will be cutting its policy rate by only 50bps in 2026, as the bulk of the market projects. However, we doubt the CB will not cut its MPR in 2027, despite the market seeing the rate sitting at 6.50% until the end of the foreseeable horizon.

We recognize easing exceeding 50bps may not be warranted, considering it would bring the policy rate into expansive territory. However, the CB remains very dovish, showing no real commitment with its 3.00% inflation target. Indeed, we continue to believe the CB may cut its policy rate by 50bps in 2026; however, we believe the chances of further easing in early 2027 are of about 50%.

Overall, we expect the CB will hold its MPR at 7.00% on Thursday. We changed our projection because of a disappointing performance by CPI inflation in March H1. We expect the hold to come from a unanimous board, but we won't be surprised if it comes from a 4-1 vote, with Deputy Governor Omar Mejía willing to vote for a 25bps cut despite lingering inflationary pressure, a disappointing performance in February and March H1, and new risks coming from geopolitical conflicts.

• Next MPC meeting: 23 - 24 February
• Current policy rate: 27%
• EmergingMarketWatch forecast: 26.5%

The first MPC meetings of the year will take place on February 23 and 24. This session will clarify if recent economic data supports continued restraint or the start of an easing cycle. At the November meeting, the MPC kept the benchmark rate at 27% to consolidate progress on inflation and exchange rate stability. Governor Olayemi Cardoso said policymakers wanted more time for earlier decisions to take effect, despite pressure to reduce borrowing costs. The committee adjusted the interest rate corridor to discourage banks from parking excess funds at the central bank and instead encourage lending to businesses. Analysts say this shift should support credit to the private sector and sustain the disinflation path, with some of these analysts expecting the MPC to remain cautious for now. While the CBN's approach will continue to prioritise price stability over aggressive rate cuts, we anticipate a 50bps rate cut given the disinflation trend. The majority (six members) of the MPC voted for a rate hold in November, but five members supported a 50bps cut amid strong external buffers and continued disinflation. Given that conditions have continued to improve, we expect most committee members to support a cut in February.

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CPI inflation moderated to 15.1% y/y in January, representing the tenth consecutive month of slowing inflation. Food inflation slowed to 8.9% y/y (the lowest level in a decade), compared to 27.6% y/y in January 2025. However, core inflation remains quite elevated at 17.2%. Looking ahead, various forecasts indicate that headline inflation will average 14-16% in 2026. We also expect continued stability and a downward trend in inflation during 2026. The CBN expects headline inflation to ease to 12.94% this year due to falling food prices and lower costs of petrol, according to the bank's 2026 Macroeconomic Outlook.

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Governor Cardoso has repeatedly linked the stability and reforms in the naira to the country's ongoing disinflation process. According to recent analysis by Stanbic IBTC Asset Management, the CBN spent about USD 7.8bn in 2025 to manage foreign exchange liquidity and stabilise the naira. Nearly half of the interventions took place during a period of sharp exchange rate volatility between March and May, when the bank intensified dollar sales to calm markets and reinforce confidence in the liberalised FX system. These actions helped narrow exchange rate gaps and improve overall market sentiment, contributing to a build-up in external buffers. Nigeria's external reserves have risen to USD 48bn as of Feb 16, the highest level since 2018.

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Looking ahead, although inflation is slowing, MPC members warn of risks from seasonal spending and election-related fiscal pressures. Historical patterns during election cycles in Nigeria often amplify these pressures, including FX demand spikes from political activities and potential capital flow reversals amid policy uncertainty. This might force the CBN to maintain a tighter stance longer than anticipated to safeguard reserves and the naira's stability. On the whole, we expect the MPC to enter 2026 balancing cautious monetary easing with a continued focus on price and exchange rate stability.

Monetary Policy Committee Statement

Monetary Policy Committee Meeting Schedule

• Next policy meeting: Apr 27, 2026
• Current policy rate: 10.50%
• Last decision: Hold (Mar 9, 2026)
• Our forecast: Hold
• Rationale: SBP to remain on hold, given rising oil prices and pressure on rupee, potential for inflation acceleration

The State Bank of Pakistan (SBP) kept its policy rate unchanged at 10.50% on Mar 9, remaining flat for the second meeting in a row. The decision was largely in line with market expectations, as well as our forecast. The central bank cited concerns over the growing oil prices due to the conflict in the Middle East and their impact on inflation and the local currency. Nevertheless, the projections for inflation and current account were maintained for the ongoing fiscal year, suggesting that near-term macro risks remain manageable, though the uncertainty has clearly increased.

The SBP highlighted that it was prudent to keep the policy rate unchanged to support sustainable economic growth. The emphasis on "sustainable" is key, as the central bank aims to avoid overheating the economy through further monetary easing, which could generate excess demand, fuel inflation, and ultimately jeopardise the recent hard-won macroeconomic stability. Thus, the rate hold signals a strong commitment toward maintaining price stability and ensuring durable growth.

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Inflation environment

CPI inflation accelerated to 7.0% y/y in February, up from 5.8% y/y in January, though the central bank said it was within expectations. In fact, CPI inflation remains within the 5-7% target band, though risks have increased with a clear upside potential. In fact, the SBP noted that CPI inflation will likely remain above 7% in the remaining months of FY26 and going into early FY27, though it believes second-round effects from the transmission of higher oil prices will be limited.

In our view, this will largely depend on the duration of the conflict and its impact on oil prices and deliveries. We should note that the government raised fuel prices by 19.6% for high-speed diesel and 17.0% for petrol, thereby passing part of the increase in international oil prices to final consumers. This would certainly alleviate fiscal pressure. The government has also undertaken various austerity measures to make sure Pakistan's fiscal stance and inflation expectations remain solid.

GDP growth

The SBP kept its GDP growth forecast unchanged at 3.75%-4.75%, after raising it in January, suggesting it expects limited to no impact on economic growth from the Middle East conflict. This outlook is bolstered by sustained domestic demand, aided in part by lower borrowing costs and improved farm output, especially wheat. The central bank noted that economic activity has picked up sharply, as reflected in strong readings of private consumption and investment-related indicators, including auto sales, cement dispatches, refined fuel sales, and imports of machinery and intermediate goods.

GDP growth came in at a solid 3.7% y/y in Q1 (Jul-Sep) of FY26, and the SBP noted that this momentum likely continued into Q2. The central bank's full-year growth forecast is more upbeat than the IMF's and World Bank's projections of 3.2% and 3.0%, respectively.

External sector

The current account in H1 (Jul-Dec) of FY26 posted a USD 1.2bn deficit, swinging from a surplus of USD 957mn in the same period last year. This deterioration was driven by a sharp increase in imports and a fall in exports, primarily due to a plunge in rice shipments amid increased competition from India. Nevertheless, the deficit remains relatively contained, as the widening trade gap is offset by robust workers' remittances, low global commodity prices, and strong IT exports. The SBP kept its projection for current account deficit unchanged at 0-1% of GDP for FY26.

A favourable current account position (together with loan inflows, including IMF disbursements) has enabled the SBP to build up its foreign exchange reserves through interbank purchases, which, according to SBP governor Jameel Ahmad, totalled USD 22bn over the past three years. The reserves are projected to trend higher, reaching USD 18.0bn by June from USD 16.3bn as of Feb 27. Stronger forex reserves have significantly improved Pakistan's capacity to meet its external obligations.

Further Readings

Previous policy rate decisions

SBP's The State of Pakistan's Economy report

Latest IMF staff report

• Next monetary policy meeting: Apr 23
• Current policy rate: 4.25%
• EmergingMarketWatch forecast: Hold or cut by 25bps
• Rationale: MB statement of Feb 19; new MB projections of GDP growth, inflation; comments by Governor Remolona

We think that a hold decision and a 25bp policy rate reduction are both possible at the next meeting of BSP's Monetary Board (MB) on Apr 23, the second one for 2026. Last week, the MB cut the key rate by 25bps to 4.25%. The decision was in line with expectations. It followed a 25bp reduction in December. Back then, the MB said that it saw the easing cycle nearing its end. There was no such language in the statement for the February MB meeting.

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After the latest MB meeting, BSP Governor Eli Remolona Jr. said that the outlook for further rate cuts depends on the speed of the recovery of investor confidence. If that happens in a few months, as the central bank expects, there will be no need for further monetary easing. He also said that growth and confidence affect each other and perhaps they could do something with respect to growth.

The main argument in favour of continued easing is the weak economic growth outlook. The central bank has lowered its projection of 2026 GDP growth to 4.6% from 5.4% expected previously. The BSP now expects the GDP to rise by 5.9% next year, also a downward revision. The DBCC targets real GDP growth of 5.0-6.0% in 2026 and 5.5-6.5% in 2027.

The BSP has revised its inflation projection for 2026 to 3.6% from 3.2% previously. According to the central bank, the inflation outlook remains "manageable." However, we think that 3.6% is perhaps too near the upper end of the 2-4% inflation target range to be considered comfortable.

The MB said it will remain vigilant and guided by incoming information, particularly with respect to inflation. The central bank will ensure that overall policy settings continue to be in line with its objective of price stability consistent with sustainable growth and employment.

Inflation

Last week, the MB said that the outlook for inflation continues to be manageable. Forecasts for this year have been revised upward slightly, largely because of supply‑side pressures, which are probably temporary. Nonetheless, inflation expectations remain well anchored, and inflation is projected to move near the 3% target by 2027. The BSP has revised its inflation projection for 2026 to 3.6% from 3.2% previously. The forecast for 2027 has been raised to 3.2% from 3.0%.

CPI inflation accelerated to 2.0% y/y in January from 1.8% y/y in December. The CPI growth had been below the target band over the 10-month period Mar 2025 - Dec 2025. The latest reading is an 11-month high. Annual core inflation was 2.8% in January, speeding up from 2.4% in December.

Economic growth

The MB said that economic growth has fallen short of the central bank's expectations because of weaker domestic demand. While the latest indicators suggest there will be a recovery in H2, growth will depend primarily on the speed of the recovery of confidence. The central bank has lowered its projection of 2026 GDP growth to 4.6% from 5.4% expected previously. The BSP now expects the GDP to rise by 5.9% next year, also a downward revision. The latest projection for 2026 is below the administration's target of 5.0-6.0%.

The GDP increased by 3.0% y/y in Q4, decelerating from 3.9% y/y growth in Q3. The latest reading is the weakest growth since Q1 2021, when GDP fell by 3.8% y/y. The Philippine economy expanded by 4.4% in 2025, decelerating from 5.7% growth in 2024.

Last year's economic growth outcome was below the most pessimistic estimate, which had been made by the BSP. The central bank expected economic expansion by 4.6% in 2025, whereas the Development Budget Coordination Committee (DBCC) predicted full-year growth by 4.8-5%.

Exchange rate

The peso is trading at USD/PHP 57.551 at the time of writing, which compares with USD/PHP 58.012 on Feb 19, the date of the latest MB meeting. The Philippine currency has strengthened from USD/PHP 59.466 on Jan 15. The peso appreciation provides some room for the BSP to further cut the policy interest rate, in our view.

Further reading

Press release after Dec 2025 monetary policy action

Schedule of monetary policy meetings

Highlights of MB meetings on monetary policy

Monetary Policy Report

• Next MPC meeting: Apr 8-9, 2026
• Current policy rate: 3.75%
• EmergingMarketWatch forecast: 3.75%

Rationale: All Monetary Policy Council members that have spoken since the council cut rates by 25bps at its Mar 3-4 sitting have stressed that the council will likely be on hold until the war in Iran ends in order to gauge its likely impact on inflation and the economy. Most have also indicated that the MPC would not jump towards hikes, especially as it still sees its March cut as having been justified. NBP and MPC chair Adam Glapinski's comments in late March were instructive in that he did see inflation upside risks from fuel prices and such, but he said the war would also help slow economic activity and was occurring even as Chinese imports and slowing wage growth helped depress inflation. The sense from those comments is that Glapinski wanted to flag inflation risks while not making hawkish comments.

MPC member Ireneusz Dabrowski said outright that though it was hard to talk about further rate cuts, expectations of rate hikes also marked an overreaction. He said the council should remain on hold while the war continues. Fellow council member Gabriela Maslowska said a little earlier in March that the council would only consider interest rate hikes if the impact of the Iran war on local and global inflation were sustained, but if that impact is short-lived, it might return to a discussion of rate cuts. Council members have tended to give similar comments.

Overall, the MPC is surely going to keep rates flat in the coming months, and it does seem likely that unless the price shock rises massively, the council will be on hold until at least the July inflation projection. We imagine it will be reluctant to raise rates considering the March projection showed inflation just below the inflation target for 2026, 2027, and 2028. The thinking will likely be that though the 2026 inflation forecast will be too low, this will be due to an exogenous shock that will work its way out of the economy in a way that doesn't require a reaction, especially since slower economic growth will keep domestic inflation pressures in check and thus keep the path towards 'at-target' inflation in 2027 and 2028. But everything will depend on the duration of the conflict and whether it worsens.

MPC's post-sitting statements

Latest council minutes

Latest NBP inflation report (March 2026)

Most recent MPC voting results

Archived video of all MPC press conferences

• Next MPC meeting: Apr 22, 2026
• Current policy rate: 37.0%
• EmergingMarketWatch forecast: Hold
• Rationale: Capped fuel prices, stable FX demand, and CBT's expectations of short conflict anchor it's decision, in our view

We expect the CBT to stay on hold at the upcoming MPC meeting, as the recent escalation in Middle East geopolitical tensions has driven oil prices roughly 30% higher. We expect this shock to feed at least partially into March headline inflation through the fuel price smoothing mechanism. That said, upside risks persist, driven most notably by the rise in travel demand during the Ramadan holiday.

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Rather than delivering a further policy-rate hike, three main factors appeared to underpin the committee's decision to stay on hold, in our view. First, the sliding-scale mechanism that capped the pass-through from higher oil prices to domestic fuel prices. Second, based on the market colour we followed, the outbreak of the Iran war did not immediately trigger a domestic rush into FX. Third, policymakers likely assumed that the conflict would not prove protracted.

However, should the last assumption reverse, the scenario could shift materially for the CBT, we note. If the war lasts longer and oil settles at USD 100 per barrel by end-April, the CBT may conclude that the shock is no longer temporary but increasingly persistent. Such an outcome could intensify capital outflows, which market contacts already estimated at around USD 20-25bn following the outbreak of hostilities, largely reflecting foreign investor exits. If this is then compounded by local reports of tourist reservation cancellations linked to the conflict, rising energy costs widening pressure on the core CA balance, and, more importantly, a renewed domestic shift into FX, the policy trade-off would become far more severe and the case for additional tightening would strengthen materially. Under such a scenario, the CBT may consider raising the overnight lending rate, we assess.

Overall, we think the CBT now faces a far more difficult policy path than it did at the beginning of the year. The economic impact of the Iran war on Turkey is likely to be substantial, particularly given the country's external vulnerabilities and still-fragile inflation dynamics.

We continue to believe that the CBT is now bearing the cost of its earlier premature easing cycle, compounded by a serious policy misjudgement. In its inflation report published last month, the CBT assumed that geopolitical risks would ease and reduced its medium-term oil price assumption from USD 65 to USD 60.9 per barrel. Since then, Brent has risen to around USD 100, rendering that baseline plainly obsolete. In our assessment, the CBT failed to appreciate the scale of a geopolitical threat that had been building steadily for some time. That error appeared particularly striking given how little room Turkey had for policy complacency on this front.

Against this background, we think that the year-end inflation target of 16% no longer looked attainable. In our assessment, even the upper bound of 21% appeared increasingly out of reach under current conditions. Market participants, who have generally tended to err on the optimistic side, revised their year-end 2026 inflation expectation up to 25.4%. This implied a 58.8% credibility gap, which, in our view, remained notably wide and underlined the continued disconnect between the official disinflation path and market pricing. As we have flagged before, the CBT would likely have little choice but to revise its projections at a later stage. Until then, the policy stance would remain under pressure from a harsher external backdrop, weaker confidence, and a much less forgiving inflation outlook.

Summary of March rate-setting meeting

MPC rate decision in March

Quarterly Inflation Report for Q1

Monetary policy strategy for 2026

• Next MPC meeting: Apr 28, 2026
• Current policy rate: 4.50%
• EmergingMarketWatch forecast: 4.50%

The BCCh's Monetary Policy Council (MPC) voted unanimously to keep its benchmark interest rate unchanged at 4.50%, in line with consensus, according to the post-sitting statement.

The real news was the forward-looking commentary. The MPC said domestic CPI inflation is likely to rise to 4% in Q2 due to the transmission of the global oil price shock, but expects its effects to get diluted over the medium term, allowing inflation to return to the 3.0% target in 2027. However, the MPC said the degree of uncertainty is higher than usual, and that it will be particularly attentive to signs of greater inflation transmission or persistence. Accordingly, the MPC said the future path of the policy rate will be assessed meeting by meeting, depending on how events unfold.

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In what follows, we summarize the content of the post-sitting statement in the order it was presented and close with our view:

Iran conflict - The war in the Middle East has significantly increased uncertainty regarding the future evolution of the global economic outlook. The price of oil has risen to around USD 100 per barrel, which will have consequences for inflation and activity at the global level. In this context, market expectations for the policy rate paths of major central banks point to stability or increases over the medium term.

Financial - Global financial conditions have tightened in recent weeks, with increases in nominal interest rates at both short and long maturities, declines in equity markets, and currency depreciations against the US dollar. At the same time, the price of copper has declined from the highs reached in the first two months of the year, although it remains above the levels the BCCh projected in December. The local financial market has mirrored global trends, with declines in the stock market (IPSA), peso depreciation, and increases in short and long nominal interest rates.

Real economy - Activity closed 2025 with growth of 2.5%, as expected, with private consumption sustaining its dynamism and investment continued to be supported by mining and energy projects. The economic activity reading for January came in below expectations, influenced by supply-side factors in mining and agribusiness. The government announced a fiscal spending adjustment in March. In the labor market, the unemployment rate showed little change and job creation remained limited.

Inflation - CPI inflation stood at 2.4% y/y in February, declining more than the BCCh projected in its December update of macro forecasts. Core inflation was 3.3% y/y, in line with expectations. Short-term inflation expectations increased significantly in recent weeks due to higher international fuel prices and the depreciation of the peso. Two-year inflation expectations stand at 3.0%-3.1% according to consensus polls.

Guidance - The external shock caused by the war in the Middle East is significant due to the magnitude and speed of the increase in global fuel prices. These increases will be passed through to local prices and will significantly raise inflation, which would reach around 4% y/y in Q2. Its effects would fade over the medium term, assuming that the transmission of the external shock behaves in line with historical averages, that no further significant increases in international prices occur, and that domestic demand moderates its expansion.

If this scenario materializes, inflation will return to levels consistent with the target during 2027. However, given its magnitude, the MPC will be particularly attentive to signs of greater transmission and/or persistence of the shocks currently being faced.

The macroeconomic scenario is subject to a higher-than-usual degree of uncertainty. Therefore, the MPC considers that it will be necessary to continuously evaluate alternative scenarios in which the response of the global and domestic economy may generate inflationary pressures different from those expected, requiring changes in monetary policy. Accordingly, the future path of the policy rate will be assessed meeting by meeting, depending on how events unfold. The MPC reaffirms that it will take the necessary decisions to ensure that projected inflation stands at 3% over a two-year horizon.

Overall (EMW view) - The MPC adopted flexible guidance while flagging that risks are tilted to the upside. The MPC was careful about not mentioning the triggers for future cuts/holds/hikes at any point. Still, our interpretation is that a rate cut is out of consideration for the time being unless the oil price shock gets fully reversed soon, the rate staying on hold at 4.50% through 2026 is the most likely outcome in a scenario where domestic inflation peaks around 4%-5% over the next two quarters, while hikes come into play with news that lead to expected inflation above 5.0%, whether this is due to global oil prices steadying above USD 100bbl or due to local second-round effects being stronger than the BCCh currently estimates.

• Next Board's meeting: Mar 31, 2026
• Current policy rate: 10.25%
• EmergingMarketWatch forecast: Hike at least 75bps

BanRep is preparing for its second monetary policy rate hike of the year with the intent of front-loading the monetary policy reaction to the inflationary pressures that have been building up. The source of uncertainty for the Mar 31 policy meeting is the magnitude of the coming hike. We have recently forecast that an increase of at least 75bps is likely, again taking into consideration that inflationary pressures, especially on core inflation, have been rising.

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This view aligns with a recent presentation by Board Member Mauricio Villamizar, a key and high-profile figure within the Board's hawkish majority. Although there may be pressure in the public debate to ease policy, Villamizar was emphatic in warning that considering hasty and unsustainable cuts would be counterproductive, since it would trigger an increase in long-term rates or a higher terminal rate. By contrast, he argued that the optimal strategy during the current hiking cycle is front-loading. The logic of his presentation is clear: monetary policy should be aggressive in "preventing the fire" (i.e., the current hiking phase). In contrast, it must be extremely careful when removing the brakes in the future (i.e., the cutting phase) to avoid reigniting the embers of inflation.

Under this premise, we recall that CPI inflation expectations for Dec 2026 have remained steady and close to 6.3% since February. However, this does not imply that expectations have been anchored. Rather, it likely reflects that the market has already incorporated the inflationary shock from the 23% minimum wage increase for 2026.

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Moreover, in an early Jan 2026 interview, Villamizar mentioned that he had suggested the Board implement a front-loading strategy, although the majority decided to hold the rate steady at 9.25% in the Dec 19, 2025 meeting. Thus, considering that he is an influential technical voice on the Board, it is clear that this aggressive approach will be ideal until the hawkish majority is fully convinced that both headline inflation and core measures show signs of stability or sustained decline. At that point, a gradual approach would be likely.

We also point out the macro backdrop facing the central bank: current headline inflation, presently above 5%, faces imminent upward pressures in its core components. Added to this is a wide trade deficit, with double-digit growth in imports and stagnant exports, as well as a gasoline subsidy of COP 500 per gallon. The subsidy's sustainability has become a policy question recently, given the increase in crude prices due to military tensions in the Middle East. Overall, the signals point to a jumbo increase at next week's Board meeting.

Adding to domestic pressures, the conflict in Iran introduces an external risk. In a Fri. interview with Bloomberg, Board Member Olga Acosta, who also belongs to the hawkish majority, said that inflation expectations have become unanchored after this year's record minimum wage increase. She also warned that the economy is showing signs of overheating as "vigorous" demand outpaces output. "We are waiting to see whether it will be a short conflict, as they are announcing," Acosta said. "But it is hard to see how it will be short." Further, the impact of fertilizer shipments that cannot pass through the Persian Gulf will also affect Colombia, she added, since prices for crop nutrients have surged after the disruption of flows in the region. This threatens to trigger food price inflation this year.

Taken all together, we do not expect the central bank to see a favorable inflation situation in the short term, so it will seek to anchor expectations as soon as possible. Raising the policy rate to 11% or 11.25% next week could contribute to this end. The Board could then judge the merits of a more gradual approach, provided that the macro data allow it.

• Current policy rate: 4.00%
• Next monetary policy meeting: Mar 30, 2026
• Expected decision: Hold

The fighting with Iran and Hezbollah has likely completely changed the path of the monetary policy and we think that the MPC will most likely maintain the policy rate steady at 4.00% at least in the entire H1, delaying any potential rate cuts for later this year or early next year. The next decision is set to take place on Mar 30 and it remains unclear for now if the military activities would have ceased by then, especially on the northern border with Hezbollah. There are large uncertainties how long the war will continue and about its outcome, which will have a material effect on inflation developments and therefore it is very difficult to predict at this point when and if the monetary easing would continue.

Data Download

Inflation sped up to 2.0% y/y in February and even if slightly higher than expected, it remained at the mid-point of the 1-3% target range for the second consecutive month and within the band ever since August. The outlook, however, has deteriorated with the start of the Iran war and the next print will very likely confirm that a change in trend has taken place in February. One of the immediate effects on inflation should come from the spike in world oil prices, which in Israel would be moderated in March by the fact that gasoline prices are regulated and were already fixed for March before the war began. However, flight tickets are likely to compensate with spikes, not only because of more expensive fuel but also due to the cancellation of flights and the high prices local air carriers were charging to bring back Israelis stranded abroad. The surge in air fright prices is to affect the prices of certain goods like medicines, electronics, and clothing and footwear. Most of the merchandise imports enters the country through the seaports and shipping rates have increased substantially. Apart from oil prices, inflation in Israel is likely to be pushed up by the returning of supply-side shortages, mainly in the labour market due to the drafting of reservists, but possibly also due to difficulties to transport goods at the backdrop of firing of missiles from Iran and Hezbollah. The housing component has been with an inflationary impact in the past few months and might continue pushing up the headline CPI increases in the following months as housing stock will be affected by damages from missiles. The shekel appreciation has been an important factor behind the easing inflation but after the initial euphoria at the start of the fighting, the shekel started weakening and will not be able to offset inflationary pressures at least in the short term, we think.

GDP increased by 4.2% saar terms (seasonally-adjusted annualised rate) in Q4 and by 2.9% in 2025. Initial data pointed to strong economic activity in Jan-Feb but with the start of the new fighting with Iran, things have changed for the worse. Economic activity was initially restrained to essential activities only and the finance ministry estimated that this would cost some 0.45% of GDP per week and a partial reopening started less than a week after the war began, which should more than halve costs. The previous conflict with Iran pulled the economy to a decline of 4.3% saar in Q2 2025 (previous Iran war was in June 2025) but a strong rebound of 12.7% in Q3 followed, which showed a more than full recovery of the economy. The finance ministry assessed last year's Iran war impact on GDP expansion at 0.3pps and at the start of the current war it estimated that the fighting would cut GDP growth by 0.5pps. However, media reports quote officials as saying that this forecast was grounded on expectations for a shorter fighting and the negative effect would likely be worse. In any case, the MPC is stressing on inflation when deciding on the monetary policy and therefore we think that the economy would not be a major consideration when deciding on the policy rate.

Board statements, press briefings, minutes from MPC meetings

Calendar of MPC meetings

Latest BoI macroeconomic forecasts

Monetary policy reports

Bank of Israel Law

The Monetary Committee

• Current policy rate: 18%
• Next monetary policy meeting: Apr 24
• Expected decision: hold
  

On Mar 6, the NBK kept the base rate on hold at 18%, which was expected. The bank noted February's more moderate CPI rate, but also acknowledged that monthly price growth levels remain elevated. As a whole, the NBK was confident that disinflationary tendencies have strengthened. This was attributed to the bank's own tight stance, exchange rate dynamics, lower credit growth, the withdrawal of excess liquidity, and the mirroring of gold purchases. In addition, the NBK deems the inflationary impact of this year's VAT hike to be limited at present.

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With regard to risks, the bank is still cautious of global food prices, inflation dynamics in Russia, and potential non-compliance with fiscal targets. Nevertheless, it opted to revise the year-end inflation forecast to 9.5-11.5% (from 9.5-12.5%). Apart from the factors outlined above, the NBK also based this decision on expectations of more moderate inflation contributions from fuel prices and tariffs. More generally, the bank believes it will reach the medium-term inflation target (5%) by end-2028.

Looking forward, the NBK still maintains there is no scope for monetary easing in H1, so the baseline scenario for April entails another on-hold decision. At the same time, the bank signalled rate cuts may be possible in H2. At this stage, it seemingly expects that the conflict in the Middle East will not persist. Nevertheless, we note that inflationary pressures will escalate in case of prolonged volatility, possibly delaying the NBK's easing plans.

• Next policy meeting: Apr 10
• Current policy stance: 2.50%
• Last decision: Feb 26 (Hold)
• Our forecast: Hold
• Rationale: Heightened macroeconomic uncertainty due to Middle Eastern conflict to force BOK to take wait-and-see approach

The upcoming new head of the Bank of Korea Shin Hyun-song, who was nominated by the President on Sunday, is likely to defend more hawkish monetary policy during his term that will start next month, but we don't think that his nomination will change BOK's stance in the short-term. Shin is widely considered a pragmatic hawk who will put greater emphasis on financial stability and pre-emptive rate hikes to tame inflation expectations. At the same time, we think that the uncertainty regarding the future inflation outlook remains too high and the BOK will maintain a wait-and-see approach for the time being until there is more clarity on the inflation front.

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As of Mar 25, crude oil prices seem to have stabilized somewhat at levels around USD 100 per barrel of Brent, but at the same time, the country also faces significant uncertainty regarding future deliveries of different energy products, including naphtha and LNG. The government has also moved aggressively to stabilize fuel prices by implementing a wholesale cap on fuel prices, which will soften the impact on domestic inflation. As of late March there are still no clear signs by how much inflation has surged in South Korea. At any rate, the BOK will closely monitor the upcoming March CPI inflation report which will shed more light on inflation developments.

The Bank of Korea also introduced a new forward guidance in the last meeting in February, which showed that the vast majority of members expect the base rate to stay unchanged at 2.5% over the next 6 months. However, the guidance might change dramatically due to the closure of the Strait of Hormuz.

New BOK head has a history of making hawkish comments

After being nominated for the job, Shin Hyun-song said that he will lead a balanced monetary policy, while taking into account price stability, growth and financial stability. However, he is known for making hawkish comments in the past in favour of fighting inflation and defending financial stability. Most notably, he made a comment at the G20 Global Financial Stability Conference in Sep 2022, saying that "Taming inflation is the top priority of current economic policy," and urged the BOK to pre-emptively raise the base rate.

This comment bears particular relevance to the current situation as the economy faces a similar oil price shock as in 2022. However, he was also cited by Reuters recently as saying that "if the shock originates from the supply side and is temporary, rather than responding mechanically with interest rates, we should look through the situation." Shin has repeatedly warned in the past about excessive debt, rising household debt and asset bubbles and argued that central banks should put greater consideration on broader macroeconomic and financial stability risks.

Shin's expertise in macroprudential policy will also serve him well in the current period of heightened financial market volatility. It is worth noting that Shin advised former president Lee Myung-bak on policies to manage capital flows and reduce systemic risk in the banking sector after the Global Financial Crisis. Shin is likely to favour various macroprudential policies to stabilize the country's FX and real estate markets, instead of relying on blunt interest rate hikes. Shin will provide more details about his policy views in his upcoming confirmation hearing at the National Assembly which is expected to take place sometime in the next month.

K-shaped recovery continues amid great financial volatility

Meanwhile, the economic recovery in Korea remains in a firm K-shaped recovery pattern. The surge in semiconductor demand caused a stock market boom, with the benchmark KOSPI rising by roughly 25% early 2026. The market has become much more uncertain since the start of the Iran war, with the KOSPI index trading within the 5,000 to 6,000 range during the month of March. Korean bond yields have also surged higher both in response to the war in Iran and the nomination of Shin Hyun-song for new BOK head.

Looking at economic data, all industry production rose strongly by 4.1% y/y in January amid solid industrial production growth and stronger services growth. Exports are also booming, up by 50% y/y in the first 20 days of March, due to the spike in memory chip prices. Meanwhile, domestic consumption is improving, but only slowly as retail sales rose by just 0.6% y/y on average over the Nov-Jan period.

CPI inflation stayed at a 5-month low of 2.0% y/y in February, but the outlook has now clearly shifted, given the depreciation of the won and the spike in oil prices. On the positive side, real estate prices seem to have stabilised in recent weeks thanks to the government's pledge to raise taxes on multiple home owners. The situation in the Middle East clearly overshadows the developments in the real estate market, however, and BOK's future policy decisions will be increasingly driven by expectations for future oil prices, in our view.

Conclusion

Overall, we don't think that the BOK will move quickly to raise rates despite the appointment of Shin Hyun-song for new BOK head and the protracted Iran war. First of all, the next meeting on April 10 will still be presided by outgoing governor Rhee Chang-yong who has signalled that the BOK will likely stay on hold for a long period of time. At the same time, uncertainty regarding the future situation in the global oil market will likely force the BOK to adopt a cautious stance as there is a still a good chance that the oil supply disruption will be only temporary.

In our view, BOK is likely to start raising rates starting from Q3 depending on the impact on CPI inflation from the war in Iran. If the BOK moves too quickly to raise rates, this would likely hurt consumption demand and small businesses which are already underperforming vis-à-vis the booming semiconductor sector. The BOK is likely to wait until CPI inflation approaches the high 2% level before it makes any moves, in our view.

Useful Links

Monetary Policy Decisions

Minutes

Monetary Policy Board composition

Open Market Operations

• Next policy meeting: May 7, 2026
• Current policy rate: 2.75%
• Our forecast: Hold
• Last decision: Hold (Mar 5, 2026)
• Rationale: RON95 price cap provides protection from surging oil prices

Bank Negara Malaysia (BNM) is still likely to remain on hold in its upcoming policy meeting on May 7, 2026 despite the surge in oil prices due to the conflict in the Middle East. Malaysia remains relatively isolated from the oil price shock due to the existence of the MYR 1.99/litre cap on RON95 fuel, which the government has vowed to defend in the face of higher crude oil prices, at least in the short-term. Furthermore, the relatively high GDP growth and contained level of inflation removes the need for BNM to make any adjustments for now. Going forward, we think that the BNM maintains the capacity to hold rates for longer compared to Malaysia's regional peers even in case of a protracted crisis in the Middle East.

In the last meeting on Mar 5, the BNM decided to hold its policy rate unchanged at 2.75% for the fourth consecutive meeting. In addition, the BNM suggested that it expects modest impact from the crisis in the Middle east as it wrote that "While global commodity prices may be subject to greater volatility given recent developments, the impact on domestic inflation is expected to be contained." In addition, BNM's governor Abdul Rasheed said on Mar 6 that he expects that targeted subsidies and the stronger ringgit will mitigate the oil price impact. Meanwhile, MIDA chairman Tengku Zafrul stated last week that Malaysia stands to benefit from higher oil price due to its status as net energy exporter.

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Economic activity

Malaysia's economy expanded 6.3% y/y in Q4 2025, accelerating from 5.4% y/y in the previous quarter and marking the fastest growth since Q4 2022. Growth was driven by stronger household spending, amid favourable labour market conditions, and robust investment, supported in part by higher machinery and equipment outlays, particularly for data centres. The government currently maintains a forecast of 4.0% to 4.5% growth in 2026 despite the challenging global economic environment.

Meanwhile, industrial production remained on the front foot at the start of Q1 as it expanded by 5.9% y/y in January led by a booming chip sector. Exports jumped by 19.6% y/y in January following a solid 6.5% expansion in 2025 that lifted total exports to an all-time high of MYR 1.61tn. Thus, the economy remains buoyant and Malaysia is facing the growth headwinds from the heightened uncertainty related to the Middle East crisis from a position of strength.

Inflation environment

Before the start of the crisis in the Middle East, BNM maintained a benign inflation outlook for 2026 after CPI inflation eased to a five-month low of 1.4% in 2025, down from 1.8% in 2024. Easing global cost pressures and the absence of excessive demand are expected to keep both headline and core inflation contained, BNM had said. After the start of the war in Iran, the BNM hasn't drastically updated its forecast for inflation due to the existence of the RON95 price cap.

In January, CPI rose 1.6% y/y, unchanged from December. Core inflation remained elevated at 2.3%, driven by higher sewerage fees, increased costs for education and insurance services, and a notable rise in jewellery prices. BNM is expected to release its official inflation forecasts in March. The government projects inflation to remain within a 1.0%-2.0% range in 2026.

Exchange rate

BNM refrained from commenting on the ringgit in its previous three monetary policy statements, suggesting the currency's strong performance in recent months prompted it to exclude the exchange rate as a factor in its policy decision. The ringgit has appreciated steadily since early 2024, when it touched a 26-year low against the US dollar. Supported by the narrowing of interest rate differentials with the US and improved domestic economic prospects, it gained 10.2% against the US dollar in 2025 and continues uptrend so far this year, taking USD/MYR to its lowest level since May 2018.

The central bank expects resilient domestic fundamentals to continue underpinning the currency, but cautioned that the ringgit will remain subjected to external influence. Earlier this year, BNM Governor Abdul Rasheed Ghaffour said that the market, not BNM, determines the level of ringgit, adding that the central bank's role is solely to ensure an orderly forex market.

The impact of the war in Iran on the USD/MYR exchange rate has been relatively muted so far, with the ringgit slightly depreciating amid heightened global risk off sentiment. In our view, the ringgit will be likely protected during the ongoing crisis as Malaysia remains a net energy exporter, and oil and gas revenues projected to rise thanks to the closure of the Strait of Hormuz.

Conclusion

The BNM is unlikely to change its monetary policy stance immediately due to the crisis in the Middle East given that the impact on both growth and inflation from the crisis is projected to be relatively small. This is because of country-specific aspects of the Malaysian economy such as the RON95 fuel price cap, its status as net energy exporter, and the high reliance on E&E exports, which will likely remain resilient during an oil price shock. Going forward, we think that the BNM is more likely to resume rate cutting to support the economy in case of an outsized global growth shock. Thus, we think that the chances of BNM reversing its policy stance and starting to raise rates are rather low as inflation will likely remain contained in Malaysia in the upcoming high oil price period.

Further Readings

Previous OPR decisions

Quarterly Bulletin Q4 2025

• Next MPC meeting: Apr 7, 2026
• Current policy rate: 6.50%
• EmergingMarketWatch forecast: Hold

Rationale: Romania's central bank is very likely to maintain the key policy rate at 6.50% at the April 7 MPC meeting, in our view. Inflation eased to 9.3% y/y in February 2026 from 9.6% in January, and the NBR expected a gradual moderation through Q1 before a temporary acceleration in Q2 and a sharp moderation in Q3, according to its latest Inflation Report. This acceleration in Q2 was linked to the expiration of the gas price cap scheme, the removal of basic food markup caps, and several commodity price increases, while the moderation in Q3 was grounded on statistical effects. Yet, the Inflation Report did not incorporate the government's decision to replace the gas price cap with an administered producer price mechanism, nor the shift to an automatic markup‑capping mechanism for basic foods. Therefore, we initially assumed that this acceleration could be avoided.

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However, the Iran conflict has added a new layer of inflationary pressure. Higher oil and gas prices raise upside risks to Romania's CPI outlook, delaying monetary easing even more and weighing on already fragile economic growth. Local economists now estimate that fuel‑driven inflation could add 0.5-1pp to headline CPI inflation in 2026. This would likely keep inflation close to 10% y/y for longer than previously expected, extending beyond Q2. As a result, we now expect end‑year inflation to land around 5%, above the NBR's 4% projection.

Governor Mugur Isarescu has explicitly ruled out a rate cut in the short term, arguing that easing was not a good idea so soon and likely not even in May. He reiterated that the central bank's primary role was inflation targeting, not supporting economic recovery, and stressed that preserving policy credibility is essential while inflation remains high. Before the Iran conflict, a rate cut in May appeared plausible to us. However, given the renewed inflation risks and the governor's stance, we now expect the first cut to be delayed until July or, more likely, August.

Isarescu also expressed concerns about weaker‑than‑expected economic performance in 2025, with potential carry‑over effects into 2026. He highlighted a sharp weakening of aggregate demand and a deepening negative output gap, which he expects to persist due to ongoing fiscal consolidation. The additional inflationary pressure generated by the Iran conflict would further aggravate the situation, making the prospect of GDP growth approaching 1% in 2026 increasingly unlikely. These dynamics reinforce the tension between persistently high inflation and weakening growth, complicating the monetary policy trade‑off.

• Сurrent policy rate: 15.5%
• Next monetary policy committee meeting: Mar 20
• Expected decision: 50bp cut

The local consensus expects a seventh consecutive rate cut to 15% this Friday and our baseline forecast is the same. If the CBR continues to reduce the rate by 50bps at each remaining meeting this year, the average rate for 2026 would be 14%, which is the middle of CBR's forecast range of 13.5-14.5%.

Inflation dynamics currently look stable. In February, prices rose by 0.7% m/m, while annual inflation slowed modestly to 5.9% y/y. CBR's seasonally adjusted annualized rate was close at 5.8% in February. The price spike following the VAT increase from 20% to 22% in January was initially seen as a factor limiting further rate cuts and was one of the reasons behind our on-hold expectations for the decision in February. However, based on CBR's recent Trends bulletin, the regulator believes that the pass-through is complete and price growth has now moved closer to the level consistent with 4% inflation. At the same time, past experience shows that direct interpretation of CBR signals does not match its actual decisions. Inflation expectations remain elevated among households and businesses, and recent surveys show only small and mixed changes. At the same time, the consensus forecast has not been revised. In our view, despite their stated importance, inflation expectations have not played a decisive role in recent CBR decisions.

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Economic activity slowed at the beginning of 2026. According to EconMin estimates, GDP declined by 2.1% y/y in January, but this is strongly influenced by fewer working days compared to last year. Business indicators also softened: the CBR business climate index entered the red zone at -0.1 in March and has been declining for five consecutive months, while the S&P Global Composite PMI fell to 50.8 in February, close to neutral after earlier growth. However, we do not expect these data to be decisive for the CBR. Expectations are improving, the pace of decline slows, and importantly, the regulator understands that growth is driven by government demand, which may change depending on fiscal policy adjustments.

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The key focus for the CBR is likely to be fiscal policy. Current FinMin data suggest that the budget impulse remains within normal levels in Q1, so the record high deficit at the start of 2026 due to lower revenues is not yet seen as a major risk. Expenditure growth in February was moderate at 5.9% y/y. At the same time, the FinMin plans to revise the cut-off oil price under the fiscal rule, with a decision possibly announced after the CBR meeting. The regulator likely already has more information on this than the market. So the decision can indirectly indicate the outcome. There were media leaks that the FinMin will implement a budget cut with a target of reducing spending by around 10%, although details on timing and composition remain unclear. If implemented, this could be disinflationary. However, this scenario may not materialize if higher revenues arise from elevated energy prices and higher export volumes amid temporary softening of US sanctions. Another potential pro-inflationary factor is a weaker ruble, though higher oil prices will provide support to the currency as well.

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Although the CBR usually ignores geopolitical and military factors in its public communication, their importance is high for this meeting. Overall uncertainty related to the conflict in Iran is rising and the potential for stronger fiscal stimulus due to higher revenues is increasing, including not only oil but also metals, fertilizers and other sectors. However, several conditions need to be met for this scenario, such as extension of US waivers and a narrower Urals discount to Brent, which in our view makes this factor insufficient to prevent a moderate 50bp rate cut at the upcoming meeting. At the same time, there are risks of higher imports and logistics costs, as well as supply disruptions, which could add to inflationary pressure.

Next MPC announcement: Mar 26, 2026

Current policy rate: 6.75%

EmergingMarketWatch forecast: 6.75%

We expect the SARB to keep the repo rate unchanged at 6.75% at the March MPC meeting, and the scope for policy easing has narrowed materially. While inflation has fallen faster than expected and reached the central bank's 3% target, the combination of rising oil prices and a weaker rand risks triggering a renewed fuel-driven inflation shock in the coming months. In this environment the MPC is likely to prioritise anchoring inflation expectations rather than delivering near-term policy relief, and rate cuts now appear unlikely for the remainder of the year.

The latest inflation data confirm that price pressures remain contained for now. Headline CPI slowed to 3.0% y/y in February, down from 3.5% in January and below both our 3.2% forecast and the 3.1% consensus. Core inflation also aligned at 3.0% y/y, indicating subdued underlying pressures. The moderation was driven primarily by lower fuel prices earlier in the year, with transport subtracting 0.3pps from the headline rate.

However, inflation is likely to bottom out in February. Our forecasts suggest CPI will remain near 3.0% in March before rising sharply to around 3.9% y/y in April as higher fuel prices feed through to the transport component. Central Energy Fund (CEF) data as of 16 March show substantial under-recoveries across petroleum products, implying pump price increases of roughly ZAR 4.5 per litre in the coming adjustment cycle. Our estimates suggest that fuel could shift from subtracting 0.4pps from headline inflation in February to adding about 0.6pps in April, explaining most of the projected rebound in CPI.

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These developments come against the backdrop of rising geopolitical tensions in the Middle East, which have already pushed oil prices above USD 100/bbl. For an economy heavily dependent on imported fuel products, the combination of higher oil prices and a weaker currency represents a powerful imported inflation shock. Fuel price increases feed directly and immediately into headline CPI and raise the risk of second-round effects through transport costs, food prices, wages and administered prices.

The SARB's earlier forecasts were based on relatively benign external assumptions. The central bank's baseline projections assume Brent crude around USD65/bbl and a broadly stable exchange rate of USD/ZAR 16.50-17.10 over the forecast horizon. Under those conditions inflation was expected to remain well contained, averaging about 3.3% in 2026 before gradually converging toward the 3% target, allowing for gradual policy easing over time.

However, the MPC itself warned that adverse external shocks could significantly alter the policy path. In its January statement the SARB examined a downside scenario in which oil rises to USD75/bbl while the rand weakens to around ZAR18.50/USD. Under this scenario inflation would peak near 4.0%, while the convergence toward the 3% objective would slow. Importantly, the SARB indicated that interest rates would remain broadly unchanged in the near term and that the transition toward neutral policy would be delayed by roughly one year.

Recent developments suggest the global economy may now be moving closer to that adverse scenario. As external risks intensify and the potential for renewed inflation pressures increases, the MPC is likely to remain cautious. We therefore expect the repo rate to remain unchanged in March, with the central bank maintaining a wait-and-see stance as it assesses the persistence of the energy shock and its implications for inflation dynamics.

Monetary Policy Committee Statement

Monetary Policy Committee Forecasts and Assumptions

Monetary Policy Review

• Next policy meeting: May 26
• Key rate: 7.75%
• Previous decision: Hold (Mar 25)
• Our forecast: Hold
• Rationale: Inflation is expected to rise after fuel price hikes due to oil price surge following US-Iran war. External position is also weakening, with renewed pressure on rupee, FX inflows

We expect the CBSL to keep the key rate on hold at its next MPC meeting on May 26. The central bank will likely adopt a wait-and-see approach as inflation starts to gain pace, while the external position weakens. So far, it has ample room to face the looming crisis, with FX reserves up to USD 7.1bn at end-February, the highest since Mar 2020 and significantly above the USD 1.5-2.0bn at the time of the previous crisis in 2021-2023.

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Inflation

Both CCPI and NCPI inflation eased to 1.6% y/y in February, remaining well below the central bank's 5% target. This puts the central bank in a great position to face the upcoming price surge, giving it time to react and possibly raise rates if inflation starts to spiral out of control.

We remind that the government raised fuel prices three times since the US-Iran war started, bringing the total fuel price increases to 30-35% in March alone. Moreover, food prices are also likely to start growing at a faster pace, with several food-producing sectors already announcing mild price hikes.

Food inflation alone eased to 1.1% y/y in February, the lowest in eleven months, again leaving ample space for the central bank to react. Hence, we expect the CBSL not to rush with possible rate hikes, but rather to await the development of the war and its impact on price dynamics. We should note that the central bank already noted in its last MPC statement that headline inflation will reach its target in Q2, ahead of previous expectations that this would happen in Q3.

External sector

Apart from inflation, the external position is the next major threat to Sri Lanka, as, despite its recent recovery, it remains heavily exposed to FX outflows. The forex reserves climbed to a six-year high of USD 7.1bn at end-February, suggesting the CBSL has some scope to weather the pressure from the rising import bill.

Another factor to monitor will be the impact of the Strait of Hormuz's closure on Sri Lankan exports, particularly tea exports to Middle East countries, one of the major export destinations. In addition, a possible spillover of the war into the neighbouring Middle East countries could affect worker remittances, one of the major sources of FX inflows. Kuwait, the UAE, Saudi Arabia and Qatar are the top four sources of worker remittances for the country, according to CBSL data.

Moreover, apart from the rising import bill and possibly a reduction in worker remittances, Sri Lanka also faces external headwinds from the drop in tourist arrivals due to the disruption of air traffic. Again, the tourism sector is one of the main sources of FX inflows, generating USD 3.2bn inflows in 2025. However, the sector was on a fragile path prior to the war's outbreak, as tourism receipts had been declining for eight months in a row despite the rising number of tourist arrivals.

GDP growth

On the growth front, so far, the situation is not so dramatic as on the inflation and external fronts. GDP growth eased to 5.0% in 2025, down from 5.3% in 2024, though still remaining robust. So far, the outlook for Q1 was optimistic prior to the war's outbreak.

At any rate, we expect the CBSL to balance the risk of a potential rate hike on GDP growth and raise the key rate only in case of significant pressure on its reserves and the local currency. We remind that last year, the central bank cut the key rate aggressively by 250bps between Mar-May 2025, before remaining on hold for the rest of the year.

Conclusion

We believe that the CBSL will remain neutral at least until its next MPC meeting on May 26. Persistent pressure on its reserves and local currency could lead to a rate hike, though we think the central bank will want to keep the status quo as long as possible.

Further reading

Latest MPC decision

Calendar of MPC meetings

• Next MPC meeting: Apr 29
• Current policy rate: 1.00%
• EmergingMarketWatch forecast: Hold
• Rationale: MPC statement of Feb 25

We think that BOT's Monetary Policy Committee (MPC) will likely keep the policy interest rate unchanged at 1.00% in its meeting on Apr 29, the second one for 2026. On Wednesday, the MPC voted 4 to 2 to reduce the policy interest rate by 25bps to 1.00%, effective immediately. Two MPC members favoured a hold decision. The MPC's decision was a surprise, as polls by both Bloomberg and Reuters had predicted that the committee would keep the key rate unchanged.

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The vote in favour of a 25bp key rate cut is intended to support the economic recovery; further ease debt burdens for SMEs and households; and anchor medium-term inflation expectations given increased downside risks. The two MPC members who backed a hold decision held the view that the existing monetary policy stance is still consistent with the economic and inflation outlook. Furthermore, previous policy interest rate reductions continue to take effect.

The prevailing monetary policy framework aims at maintaining price stability, supporting sustainable growth and preserving financial stability. The present key rate level reflects a sufficiently accommodative monetary policy stance and is consistent with the economic outlook, according to the MPC. The current policy rate is also seen as helping a gradual return of inflation to the medium-term target range. It is also important to monitor closely a potential build-up of medium-term financial imbalances amid the low policy rate, the MPC said.

Looking ahead, the committee places priority on protecting medium-term financial stability and preserving the limited monetary policy space amid elevated uncertainties. While the monetary policy stance is seen as sufficiently accommodative and aligned with the economic outlook, monetary policy alone cannot tackle the subdued economic growth caused by structural factors. The MPC sees a need for coordinating various policies to boost productivity and enhance competitiveness of the business sector, along with other targeted financial measures.

Economic growth

Thailand's GDP growth in Q4 2025 was higher than the previous assessment, the MPC said. This reflected both temporary factors at the end of 2025 and stronger-than-expected underlying momentum, especially in private investment and merchandise exports. The latter is expected to carry through into this year and next year. The performance of goods exports and private investment is expected to be better than the previous assessment.

However, the MPC expects below-potential economic expansion in 2026 and 2027, which will be uneven across sectors. The committee expects real GDP growth of about 2.0% this year and next year. The below-potential performance will be caused by structural obstacles and intensified competition. The MPC projects that private consumption will decelerate from 2025.

Inflation

Relative to the previous assessment, downside risks to headline inflation have increased because of the downward trend in energy prices and potential additional measures of the government, as well as limited demand-side pressures. The MPC now expects headline inflation to return to the 1-3% target range in H2 2027, rather than in the previously expected H1 2027. The MPC also expects slightly lower core inflation relative to the previous assessment. The core inflation will remain low.

Nonetheless, the lack of broad-based declines in the prices of goods and services suggests that deflationary risks continue to be low. Medium-term inflation expectations have decreased slightly but continue to be within the target range. The MPC sees a need to monitor closely deflationary risks.

Lending

The contraction in overall credit persists, whereas SME and household liquidity continues to be tight. In line with previous policy rate reductions, interest rates in the banking system and the financial markets have decreased. While this helped lower financing costs and ease debt burdens for businesses and households, borrowing costs keep rising for SMEs with high credit risks. One reason is that financial institutions continue to be cautious in providing loans to new borrowers and to high-risk borrowers.

The MPC sees a need to monitor closely the monetary policy transmission, as well as credit growth. The committee also supports further targeted financial measures aimed at assisting vulnerable groups.

Exchange rate

The exchange rate of the Thai baht is USD/THB 31.091 at the time of writing, which compares with USD/THB 31.47 on Dec 17, the date of the previous MPC meeting. The exchange rate was USD/THB 34.29 on Jan 1, 2025.

The baht has appreciated against the US dollar, given the outlook for the US policy interest rate path, as well as specific factors for Thailand, the MPC said. This has tightened financial conditions for exporters, especially with respect to products that are subject to intense price competition and have thin profit margins.

The MPC is concerned about signs of exchange rate misalignment from economic fundamentals. It hence sees a need to monitor closely transactions that exert significant pressures on the baht, as well as to review the effectiveness and adequacy of the already implemented measures on gold-related and other financial transactions.

Further reading

MPC decision of Feb 25

Schedule of MPC meetings

Edited minutes of MPC meetings

Monetary policy report

• Current rate: 15.0%
• Next rate decision: Apr 30
• Our forecast: on hold

The board of the central bank (NBU) on Mar 19, as expected, left the key rate unchanged at 15.0%. The NBU, although cutting the rate by 50bps in January, made it clear already back then that more cuts were unlikely in H1 2026. On Mar 19, the NBU confirmed that it would not keep easing its policy for the time being because of increased inflationary pressures and deteriorated expectations on the back of geopolitical instability. What is more, the NBU indicated that it could increase the key rate next time if risks increased. As things stand now, the NBU is likely to take another on-hold decision on Apr 30.

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The NBU stated that the headline CPI inflation, which picked up to 7.6% y/y in February, only slightly exceeded its forecast in January. Also core inflation at 7.0% y/y was in line with the NBU forecast. At the same time, inflation expectations of households worsened, as fuel, service and raw food prices grew faster than expected. The NBU warned that inflation trajectory in 2026 may be higher than forecast because of the Iran war. On the upside, said the NBU, donor assistance should enable Ukraine to finance the budget deficit and keep reserves high this year.