• 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%)

The BCB's Monetary Policy Committee (Copom) is likely to cut the Selic rate by 25bps at its Apr 28-29 meeting, marking the second consecutive cut and bringing it to 14.50% despite recent inflationary pressure stemming from the Middle East conflict. After IPCA inflation for March (the first month to reflect the impact of the energy shock) rose faster than expected, IPCA-15 inflation for April (a proxy for the official IPCA) rose to 4.37% y/y. Although this brought the print closer to the 4.50% upper limit of the +/- 1.50-pp fluctuation band around the 3.00% target, it also came in below the consensus expectation of 4.46%. Food and transport prices drove the increase in both indicators, but the April print may have come in below consensus due to the government's fuel subsidy measures, which entered into force in April. Thus, despite the energy shock and recent inflationary pressures, we still believe the Copom is likely to cut the Selic rate once again by 25bps at its April meeting, while future decisions remain unclear.

The Middle East conflict has also pushed inflation expectations higher, an issue that has been a recurring concern for Copom members. Analysts polled by the BCB raised their inflation forecasts not only for 2026 (now seen at 4.86%, above the upper limit of the target), but also for 2027 and 2028, indicating a de-anchoring of longer-term inflation expectations, according to the latest Focus Report. Analysts expect inflation to return to the 3.00% target after 2029, while the Copom sees it reaching the midpoint by end-2028, according to the March Monetary Policy Report. Although this remains a concern, we believe the de-anchoring of inflation expectations is more likely to affect future rate decisions rather than the April one.

Recent comments from Copom members also support our expectation that the committee is likely to cut the rate in April. BCB Governor Gabriel Galípolo, for instance, said that the hawkish stance adopted by the Copom in 2025 has placed Brazil in a more comfortable position to deal with the energy shock. Even BCB Head of Economic Policy, International Affairs, and Corporate Risk Management Paulo Picchetti -- who has adopted the most hawkish stance among vocal members, noting that the Middle East conflict likely altered the inflation risk balance -- has said that this scenario does not imply an immediate halt to the ongoing "calibration" cycle. Still, all members agree that the evolution of the conflict will be crucial in determining the total magnitude and pace of the easing cycle.

Overall, the Copom is likely to cut the Selic by 25bps once again in April, even as recent inflation prints have shown pressure from higher international oil prices. In our view, Copom members agree that the ongoing "calibration" cycle (so termed because the monetary environment is set to remain restrictive even after the cuts) can continue following the hawkish stance adopted in 2025. Looking further ahead, however, the outlook is less clear as the conflict evolves and as the impacts of the government's subsidy measures continue to materialize in the economy. Thus, given persistent external uncertainties, we believe the Copom is unlikely to provide forward guidance. Still, the Copom's statement will be crucial to assess its next steps, especially if it signals a change in the inflation risk balance. At this stage, we believe the policy decision for the Jun 16-17 meeting could be either another 25-bp cut or a pause in the cycle to assess how the economy is responding to the external shock and the government's measures.

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

Rationale: Uncertainty has increased after talks between the United States and Iran have not gone anywhere, and the United States decided to blockade the Strait of Hormuz as well. Oil markets have finally started to reflect facts on the ground, namely that traffic through the strait will remain impeded for an extended period of time. Domestic fuel prices have reacted accordingly, and we expect them to rise by about 12% m/m in April. Even then, the CNB could still be able to keep interest rates unchanged, as board members sent a clear message that they are looking mostly at second-round effects.

On the domestic front, the government is pushing a bill on fuel price regulation, but it still needs the president's signature, and we expect a veto. Thus, we don't see a hard cap on fuel prices implemented earlier than the middle of May. Core inflation remains slightly under 3%, at 2.9% y/y in March, and there are no second-round effects clearly visible yet. However, this is likely a calm before the storm, as we expect that retail electricity and natural gas prices will inevitably rise. The government has been mulling the removal of the entire regulated component of energy prices, which will mitigate potential price hikes, but we have no details on that yet. Wholesale natural gas prices are considerably higher than in February, i.e. before the conflict started, with spot prices being up by 37%, while 1-year futures - by 30%. Given that domestic power generation is sensitive to natural gas prices, energy price hikes are only a question of time.

CNB staff remain optimistic that headline inflation will remain within the tolerance band (2%+/-1pp) in 2026, but we have strong doubts about it. Food prices have continued to fall, and they are likely to have a mitigating impact, as the base from April 2025 is high. However, they are expected to reverse their trend in H2, when the impact of pricier fertilizers kicks in. We also expect service prices to pick up growth soon, led by transportation, which will boost core inflation. We are also seeing a steady increase in tradable prices, excluding food and fuels, even though the exchange rate has remained stable, suggesting that some second-round effects are already creeping in.

Our base scenario now envisages at least two 25bp rate hikes in 2026, though we cannot pinpoint the precise timing yet. Core inflation remains the indicator to watch, though at this point, it appears highly unlikely that it will pick up considerably in April. As we pointed out above, the CNB would much more prefer not to make such a decision early, which means that the bar for monetary tightening remains relatively high. Yet, if core inflation picks up noticeably to a level above 3%, we expect the CNB board will feel it has no choice but to act.

Thus, we put the odds are somewhat higher for rate hikes in H2, likely starting in August or September. Depending on how much supply chains are disrupted, the CNB could get away with a policy rate at 4%, which it will hold a least until H2 2027, and then ease to 3.50%. Anything lower than that would require a sustainable easing in price pressure across all fronts, something we doubt will happen any time soon. It took two years for inflation to normalise after the previous energy crisis, and we doubt it will be different this time around.

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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: May 26, 2026
• Current policy rate: 19.5%
• EmergingMarketWatch forecast: 19.5%

The MPC will hold an interest rate meeting on May 26 and we think the committee will keep interest rates on hold due to the elevated inflationary risks and global uncertainty. We rule out a rate cut as it will send the wrong signal, put further strain on the FX rate, and stoke inflationary pressures. Consumer inflation rose sharply in February and March, reflecting FX pass through effects as well as higher fuel prices, and it seems fuel prices will have to be adjusted at least one more time over the next month. Furter, we cannot rule out a rate hike if the conflict escalates dramatically, which will have severe consequences for Egypt - a net food and energy importer, as well as an attractive market for portfolio investments. A prolonged war will be a major drag on the economy and will surely force the MPC to reverse the monetary easing cycle. 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.

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Overall, we think that Egypt still has the resources and the tools to absorb another month of regional war and global trade disruptions, 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. Importantly, the CBE has refrained from intervening in the FX market to shore up the pound - which lost 8% since Feb 28 - consistent with its commitment to a flexible FX regime and the broader policy framework agreed with the IMF.

Monetary Policy Committee Statement

Monetary Policy Review

Monetary Policy Committee Meeting Schedule

• Next MPC meeting: May 26, 2026
• Current policy rate: 6.25%
• EmergingMarketWatch forecast: Hold
• Rationale: Risks for inflation outlook require tight monetary conditions

We expect that the MPC will keep the policy rate on hold in May after the MPC put a pause to the rate cuts in March and April. The MPC kept the base rate unchanged at 6.25% in April based on the increased inflationary risks due to the conflict in the Middle East. The decision was unanimous, NBH governor Mihaly Varga stated at the background discussion after the rate-setting meeting in April. The guidance was unchanged as the MPC signalled cautious and patient policy, depending on incoming macroeconomic data and financial market developments. Monetary conditions needed to remain tight due to the prevailing inflationary risks and positive real interest rates were called for in order to foster financial market stability and anchor inflation expectations, the MPC said. We think that the tone of the meeting was neutral, signalling that the MPC maintained the wait-and-see stance adopted in March as a response to the fallout from the Iranian conflict. The hike in global energy prices remained the main constraint to monetary policy, the meeting statement indicated, and we expect that the hold policy will continue as long as there is no permanent solution to the conflict.

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Inflation expectations remained another constraining factor for monetary policy. The NBH noted some recent moderation of inflation expectations, possibly helped by the disinflationary trend, but they remained elevated. Keeping the forint stable was of key importance for anchoring inflation expectations, Varga highlighted. In this context, he expressed some cautious view towards the strengthening of the forint and the narrowing risk premium on Hungarian assets after the election result. The improvement was on the back of the prospects for swifter euro adoption and the unfreezing of the EU funds, he commented. The NBH would like to transfer the decline in the risk premium on domestic interest rates, but it first needed evidence on the durability of the reduction in the risk premium, Varga said. His statement also pointed towards wait-and-see stance of the NBH in the immediate months and the NBH will wait to see whether the pass-through from the stronger forint would be sufficient to offset the upward pressure from rising global energy prices, we interpret. He seemed to close the door on rate cuts, pointing out that the NBH was dependent on the monetary policy path of global central banks and that the ECB was preparing for hiking rates.

Otherwise, Varga highlighted that recent inflation developments were in line with the NBH expectations from its latest Inflation Report in March. The NBH expected that inflation will start to accelerate and to breach the 4% upper bound of the 1pp tolerance range around the mid-term inflation target in Q3. The inflation target will be met sustainably in H2/2027, it projected. During the background discussion, Varga also expressed implicit caution on the euro adoption plans of the upcoming Tisza government, saying that successful eurozone entry required substantial preparation beforehand based on the experience of other countries. At the same time, he highlighted several times that the decision for joining the eurozone was not the responsibility of the NBH, which we consider a signal that the NBH did not agree but would not be explicitly opposed to this process.

Post-meeting MPC statement from March rate-setting meeting

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

Minutes from March MPC rate meeting

Inflation Report - Q1/2026

MPC meeting calendar 2026

• Next MPC Meeting: June 3-5, 2026
• Current Policy Rate: 5.25%
• Last decision: Hold (April 8, 2026)
• Our forecast: Hold
• Rationale: Although risks are tilted to the upside, inflation is expected to remain within target band

As widely expected, the Reserve Bank of India (RBI) kept the repo rate unchanged at its first policy meeting of FY27 and maintained a neutral stance. All six members of the monetary policy committee voted unanimously to hold rates. Despite severe disruptions to energy supplies stemming from the Iran war and the potential implications for the inflation-growth outlook, the central bank said it was prudent to adopt a "wait-and-watch" approach, expressing confidence in underlying economic fundamentals. This marks the second consecutive meeting in which the key rate has been left unchanged, following a 25bps cut in December 2025.

We believe the rate-cutting cycle, which saw a cumulative reduction of 125bps between February and December 2025, is effectively over, as the RBI shifts its focus toward anchoring inflation expectations and easing pressure on the rupee amid spillover effects from the Middle East crisis. While a rate hike in the second half of the fiscal year cannot be entirely ruled out, it appears unlikely given the RBI's still relatively benign inflation outlook, although much will depend on the duration and intensity of the conflict.

Inflation environment

The RBI projected CPI inflation to average 4.6% in FY27, accelerating markedly from an estimated 2.1% in FY26. The forecast, however, is within its 4% (+/-2%) target range. Projection for H1 FY27 is slightly raised to 4.2% from 4.1% earlier, with inflation seen at 4.0% in Q1 and 4.4% in Q2. The headline figure is expected to rise sharply to 5.2% in Q3 before easing to 4.7% in the final quarter of the current fiscal year. Core inflation is projected at 4.4% for FY27. The central bank flagged elevated energy costs and potential El Niño conditions as key upside risks to the outlook.

The impact of the Iran war was visible, albeit modestly, in the March CPI print, which clocked in at 3.4% y/y, up from 3.2% y/y in February. The increase was driven partly by a surge in commercial liquid petroleum gas (LPG) prices, as the government shielded consumers from global energy supply shock through fuel tax cuts and higher subsidies. Prices of LPG for households, petrol and diesel have remained broadly unchanged since the start of the war.

That said, as businesses begin passing on higher input costs to protect their margins, inflation is likely to pick up in the coming months. An unfavourable base effect, along with the risk of weaker agricultural output due to below-normal monsoon rainfall, could also lift food prices.

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GDP growth

The RBI remained cautiously optimistic about growth despite disruptions in global commodity markets and heightened uncertainty, which could weigh on output and liquidity conditions. The economy is seen as being on a "stronger footing" to withstand the supply shock. However, unless global supply chains are restored quickly, the shock could evolve into a demand-side slowdown over the medium term, affecting both private consumption and investment activity, the central bank noted.

The central bank projected growth at 6.9% in FY27, moderating from an estimated 7.6% in FY26. Domestic demand will be the primary engine of growth, supported in part by goods and services tax (GST) rationalization, improved business confidence, lowering borrowing costs, and the government's higher capex outlay. Growth is seen at 6.8% in Q1, 6.7% in Q2, 7.0% in Q3 and 7.2% in Q4.

External sector

The Middle East conflict has strained the country's external sector, with heightened global risk aversion triggering portfolio outflows and putting pressure on the rupee. In March, foreign investors withdrew a record USD 13.6bn from capital markets, including USD 12.7bn from equities. They have remained net sellers so far in April, pulling out USD 6.6bn from both debt and equity markets as of April 13. These outflows, along with a rising import bill due to higher global oil prices, pushed the rupee to a record low against the US dollar before it found some support from regulatory measures by the RBI. Besides, the central bank has intervened aggressively to support the currency, weighing on its foreign exchange reserves. As of April 3, reserves stood at USD 697.1bn, down from an all-time high of USD 728.5bn on February 27.

In a bid to curb speculative activity, the RBI last month capped banks' net open positions in the forex market at USD 100mn and barred corporates from non-deliverable forward trading. In a post-policy press conference, RBI Governor Malhotra said the measures were aimed at managing volatility rather than targeting a specific exchange rate level, adding that the curbs would be lifted once normal conditions return to the forex market.

The current account deficit is expected to widen due to a deterioration in the goods trade balance, as imports are likely to rise while exports weaken. Remittances remain robust for now but could come under pressure if the Iran conflict persists. In the first half (Apr-Sep) of FY26, the current account deficit stood at USD 30.1bn (1.0% of GDP), down from USD 36.6bn (1.3% of GDP) in the same period last year.

Conclusion

The RBI's decision to hold rates and maintain a neutral stance signals its intent to retain flexibility, allowing it to move in either direction depending on the global environment. That said, the central bank appeared slightly more dovish than expected, perhaps reflecting its relatively benign inflation outlook. Unless the Middle East crisis worsens and risks to the inflation-growth outlook materialize, we expect the current rate pause to be extended in the near term. This view is in line with the poll conducted by Reuters last month that showed most economists predicted the RBI to keep rates unchanged at least until mid-2027.

Further Readings

Monetary policy statement

Monetary policy report

Governor's statement

• Next policy meeting: May 19-20
• Current policy rate: 4.75%
• Our forecast: Raise, 25bps
• Last decision: Hold (Apr 21-22)
• Rationale: Middle East conflict exerts pressure on exchange rate

Bank Indonesia may raise the key rate as soon as May or June, if the Middle East conflict extends and pressure on the rupiah continues to mount, in our view. The central bank has kept the key rate on hold for the last seven meetings, remaining neutral after the surprising rate cuts in H2 2025, but its rhetoric has been gradually becoming hawkish. The oil price shock following the war in Iran forced the BI to remain on hold in March-April and talk about strengthening monetary policy to protect the rupiah.

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.

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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, but it fell to 3.48% y/y in March, returning to the upper end of the target band. Core inflation remains firmly anchored to the central bank's target.

As a result, we think BI is becoming hawkish in light of the growing pressure on the rupiah. Further monetary policy decisions will largely depend on how long oil prices remain elevated, as well as their transmission and second-round effects on inflation and the exchange rate.

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 2.8% 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 17,100-17,200 range, briefly surpassing the psychological threshold right after the Iran war started.

The BI said it would strengthen monetary policy implementation in the last minutes, in order 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 remain on hold throughout a large part of the year, possibly implementing one 25bp rate cut in late 2026.

Inflation environment

CPI inflation eased to 3.48% y/y in March from 4.76% y/y in February, returning to the BI's 2.5+/-1% target band. The spike in February was largely due to the base effect from the electricity tariff cuts for low-income households in Jan-Feb 2025.

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.

We should note that the government pledged to keep regulated fuel prices flat, hence the first-round effects on CPI inflation from the oil price shock will be limited. We may see some imported inflation through the rupiah's depreciation, though the central bank's rhetoric suggests it could hike rates, in our view.

Conclusion

Looking forward, we expect Bank Indonesia to raise the key rate either in May or in June. The timing would largely depend on the duration of the Middle East conflict, the oil price dynamics, as well as the supply-chain disruptions with oil deliveries. Should the exchange rate stabilise at the current level, we think BI could hold the key rate in May.

Further reading

Last MPC press release

Calendar of MPC meetings

• Next MPC meeting: May 7
• Current policy rate: 6.75%
• EmergingMarketWatch forecast: Hold

CB Governor Victoria Rodríguez told the Senate this week that the CB may continue its easing cycle in the next scheduled sitting, to be held on May 7. This is no surprise in the sense that the CB is looking to continue its easing cycle with one more rate cut, and pondering a cut in May is no assurance that such a cut will be made. However, the fact the governor suggests there are conditions for further easing at this time shows the lingering divergence between the CB's dovish discourse and the worrying pace of CPI inflation, in our view.

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CB Governor Rodríguez defended the CB's CPI inflation forecast, suggesting the bank may not be looking to revise up its projections in the May 7 sitting. This shows no connection between the CB's optimism and the market consensus. Banxico anticipates CPI inflation will slow to 3.5% by year-end, meeting its 3.0% target by Q2 2027. In turn, the market anticipates inflation to close the year at 4.2%, slowing to only 3.8% by 2027-end and to 3.7% by 2028-end, anticipating no convergence to the CB's target.

This divergence is rooted in the CB's unreasonable optimism that continues to disregard available inflationary data, in our view. Indeed, this divergence weakens the credibility of the CB and of its inflationary projections further.

CPI inflation accelerated to 4.6% in March, slowing to 4.5% y/y in April H1. These poor results are in part driven by transitory shocks from agricultural, energy and administered prices, with fruit and vegetables prices up by 21.8% y/y in March. The bulk of the CB's board has highlighted the transitory nature of this shock in minimizing these poor prints. Indeed, CB Deputy Governor Omar Mejía said recently that the CB's monetary policy should not follow these transitory pressures considering non-core inflation is not determined by the CB's monetary policy.

However, inflationary pressure is not limited to the non-core component, with core inflation at 4.5% y/y in March, adding 11 months above 4.0% and showing no path to converge towards the CB's general inflation 3.0% target. Indeed, while the pressure on non-core inflation may wear off and might not be driving the CB's monetary policy, the bulk of the CB has closed its eyes to lingering inflationary pressure since H2 2025, moving the policy rate into neutral territory despite lingering core inflation pressures.

In any case, even if the CB were not to cut its Monetary Policy Rate (MPR) in May, the CB has been clear to warn it will do so once more. This will close the easing cycle at 6.5%. We believe the CB may delay its cut until June, giving graduality to its easing cycle as it did earlier in the year (pausing in February). However, the idea that the CB will cut its policy rate in Q2 shows a monetary authority unbound by inflationary pressures and loosely anchored expectations, weakening the bank's credibility and commitment to a 3.0% inflation target.

Whether the CB cuts its policy rate again in May is in the hands of a super-dovish majority, in our view. We are confident deputy governors Jonathan Heath and Galia Borja will not back a rate cut in May, given inflationary pressures and poorly anchored expectations. However, all the remaining three members have shown no commitment to the CB's inflationary target and could back a new rate cut in early May in our view.

The Monetary Policy Council's (MPC) composition is an issue to watch towards the end of the year, in our view, considering the super-dovish majority may grow further, with Deputy Governor Heath set to leave the board on December 31. We note he has been the only board member to consistently speak out against unrealistic inflationary forecasts and the CB's lack of commitment with the 3.0% inflation target. His departure will make Deputy Governor Borja the more hawkish board member, but we note her commitment to the CB's inflationary target waned through H2 2025, dismissing core inflation pressures to side with the dovish majority to cut the MPR by 100bps while core inflation accelerated to close the year at 4.3%.

We anticipate President Claudia Sheinbaum will nominate someone with technical credibility to take Heath's seat, probably from within the own CB. However, this will not be enough to preserve the CB's credibility, given the unwavering commitment to cut the policy rate by the bulk of the MPC despite no evidence CPI inflation is falling, poorly anchored expectations, and lingering core pressure up, in our view. Indeed, Deputy Governor José Gabriel Cuadra has been a disappointment to us, backing constant easing and turning a blind eye to lingering inflationary pressure.

Overall, while we see no conditions to cut the policy rate in May, we believe there is a nearly 50% chance that the CB will agree to a 25bps cut in a 3-2 vote. Doing so would agree with the dovish commitment shown in the March sitting, when the board cut its policy rate despite evident inflationary pressure. For the time being we continue to expect the board will delay its last rate cut until June but believe the chances of the cut being delayed until Q3 have plummeted. Thereafter, we expect the CB to sit on its policy rate at 6.50% through the rest of 2026. We are not confident the CB will not look to ease further in 2027, despite the market consensus suggesting the rate will not fall further.

• Next MPC meeting: 19 - 20 May
• Current policy rate: 26.5%
• EmergingMarketWatch forecast: 26.5%

The CBN is widely expected to hold the monetary policy rate at its next MPC meetings on May 19 and 20. At the February meeting, the MPC cut the policy rate by 50bps to 26.5% (the second cut in six months). CBN governor Olayemi Cardoso said the decision at the time reflected the MPC's view that 11 straight months of falling inflation helped stabilise expectations, allowing room for a gradual easing to encourage credit growth and support activity in the real sector. Since that meeting and in the wake of the Iran-US-Israel crisis, inflation in March rose for the first time in a year. The rise was minor (15.4% y/y in March vs 15.1% y/y in February) but will likely cause the MPC to pause. Food inflation climbed in March for the second consecutive month while transport prices also rose. Inflation is expected to rise further in April as the effects of the Middle East crisis continue to feed through transport networks and food supply chains.

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At the launch of the World Economic Outlook report in April, the IMF called on central banks around the world to take a cautious "wait and see" approach during the ongoing conflict. The Fund stated that, provided inflation expectations remain well anchored, central banks can afford to wait and observe developments but they must stay attentive to emerging risks. Also speaking in Washington in April, governor Cardoso gave assurance that global shocks from the Middle East crisis are not derailing Nigeria's efforts to build economic resilience and achieve single-digit inflation. Cardoso described the MPC's cautious approach to interest rates as being guided by economic data. He also said committee members have access to broader indicators that reveal underlying risks. Given the likely rise in inflation in both March and April, coupled with Cardoso's cautious messaging, we expect the CBN to keep the policy rate unchanged at 26.5%.

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The country continued to face FX pressures into April. The naira experienced mixed movements, showing periods of modest depreciation alongside intermittent appreciation supported by improved FX liquidity and remittance inflows. Gross external reserves declined further, falling from USD 49.3bn at end-March to USD 48.4bn by Apr 24. This is a drop of USD 731mn in the first three weeks of the month amid ongoing portfolio outflows and global risk-off sentiment. Cardoso downplayed concerns over the reserve decline this month, stating that modest fluctuations are normal in the current environment and should not trigger anxiety. He said Nigeria remains in a comfortable position relative to global benchmarks.

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Cardoso maintains that Nigeria is now able to manage global shocks compared to past. Both the CBN and the IMF have stated that the country's policy direction is yielding visible gains in macroeconomic stability. While the CBN is optimistic overall, CBN leadership notes that food supply constraints and election-related spending remain major risks for Nigeria in 2026, in addition to global geopolitical tensions.

Monetary Policy Committee Statement

Monetary Policy Committee Meeting Schedule

• Next policy meeting: 15 June, 2026
• Current policy rate: 11.50%
• Last decision: 100bps hike (April 27, 2026)
• Our forecast: Increase by 50-100bps
• Rationale: Inflation is expected to accelerate and stay above the target range in near term

The State Bank of Pakistan (SBP) raised the policy rate by 100bps in its April meeting, surprising the market that had largely expected no change or a smaller hike. Only one economist in each of the Bloomberg and Reuters surveys had anticipated the move. The decision is justified and underscores the central bank's effort to stay ahead of the curve. The Middle East conflict has fuelled energy inflation, and if prolonged, it risks triggering second-round effects and de-anchoring inflation expectations. The SBP noted that the crisis has intensified risks to the macroeconomic outlook, particularly inflation, which is projected to remain above the 5-7% target range in the coming quarters.

The larger-than-expected hike, therefore, shows that the central bank is taking a proactive stance to safeguard the hard-won gains in price and external stability under the IMF-supported reform programme. The move may also serve as a signal to the IMF, which last month urged the SBP to remain ready to tighten monetary policy further if price pressures intensify or inflation expectations rise. The IMF Executive Board is scheduled to meet on May 8 to review and likely approve the disbursement of USD 1.2bn under its two loan programmes.

The SBP appeared less worried about the external sector on account of robust remittances and loan inflows, although the impact of the global energy supply shock has yet to fully feed into trade data. Meanwhile, the crisis is expected to weigh on economic activity. However, the latest rate hike indicates that the central bank's primary objective of price stability takes precedence over growth concerns.

Inflation environment

CPI inflation accelerated to 7.3% y/y in March from 7.0% y/y in February. The print was the highest since August 2024, driven mainly by a surge in the cost of motor fuel, electricity, piped gas, liquefied petroleum gas, and jewellery. Core inflation also edged up, rising to 7.4% and 8.4% in urban and rural areas, respectively - the fastest pace in five months - in part because of higher transport fares amid costly pump prices. Inflation is expected to quicken further in April after the government earlier this month withdrew fuel subsidies that had cost it PKR 129bn in March. As of April 29, prices of petrol and high-speed diesel stand 47.8% and 35.4% above pre-war levels, respectively. Meanwhile, the latest SBP survey shows that households' inflation expectations deteriorated sharply in April, reaching a seven-month high.

The SBP projected the global energy supply shock to push inflation into double digits in the coming months. Stable food prices amid ample supply are likely to provide some offset. Nevertheless, inflation is seen staying above the upper bound of the target range of 5%-7% during Q4 (Apr-Jun) of FY26 as well as for most of the next fiscal year.

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GDP growth

GDP growth clocked in at 3.8% y/y in the first half (Jul-Dec) of FY26, rebounding from 1.9% in the same period last year, driven by strong services and manufacturing activity while the agriculture sector weakened due to persistent decline in crop output. High-frequency indicators, including large-scale manufacturing output, vehicle sales, local cement dispatches, electricity generation, and fuel consumption, suggest that this momentum continued into the first two months of the year. However, signs of slowdown emerged in March, according to the SBP, as higher fuel prices and the early closure of businesses under government energy conservation measures likely weighed on domestic demand. The impact is expected to be more pronounced in the April-June quarter following the withdrawal of fuel subsidies.

In addition, lower-than-expected wheat production has further clouded growth prospects in the agriculture sector, the central bank noted. As a result, the SBP now expects GDP growth to come in closer to the lower end of its earlier projected range of 3.75%-4.75% for FY26. Even so, this remains more optimistic than the IMF's and World Bank's projections of 3.6% and 3.0%, respectively.

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External sector

The current account remained positive for the third consecutive month in March, posting a sizeable USD 1.1bn surplus, the highest in a year. The improvement was supported by resilient workers' remittances and a decline in crude oil and petroleum products imports, as higher global prices were offset by lower volumes due to supply disruption from the Middle East amid the closure of the Strait of Hormuz. Although the SBP noted that the impact of higher global energy prices, freight charges, and insurance premiums has yet to fully appear in economic indicators, the favourable Q3 (Jan-Mar) data prompted a more optimistic outlook on the external account. The current account is now expected to settle near the lower end of the SBP's earlier projected range of 0%-1% of GDP for FY26. In the first three quarters (Jul-Mar), the current account remained broadly balanced.

On the financing side, the SBP praised the government's USD 750mn Eurobond issuance and the securing of an additional USD 3bn in deposits from Saudi Arabia. These inflows helped cushion the impact of the unexpected USD 3.45bn debt repayment to the UAE on the central bank's foreign exchange reserves. The reserves are expected to rise above USD 18bn by end-June, up from USD 15.8bn as of April 24.

In his post-policy press conference, SBP Governor Jameel Ahmad said that debt repayments during May-June are estimated at USD 4.2bn, of which USD 2.7bn (likely Chinese commercial loans) is expected to be rolled over. Overall, he added that FY26 repayments total USD 25.4bn, of which USD 21.2bn has already been settled or rolled over.

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Way Forward

All in all, we believe the April rate hike was not a one-off event and that the SBP is likely to tighten monetary policy further. The central bank, as well as the IMF, emphasises the need to keep real interest rates "adequately positive," which, in our view, could drive another 150-200bps increase in the policy rate. That said, much will depend on the intensity and duration of the Iran conflict. An early resolution and a subsequent decline in global oil prices could render this outlook less relevant.

• Next monetary policy meeting: Jun 18
• Current policy rate: 4.5%
• EmergingMarketWatch forecast: Hike by 25bps
• Rationale: MB statement of Apr 23; comments by Governor Remolona

We think that BSP's Monetary Board (MB) will likely raise the policy interest rate by 25bps in its meeting on Jun 18. Last Thursday, the MB decided to increase the BSP's Target Reverse Repurchase (RRP) Rate by 25bps to 4.5%. This was the first increase in the rate since Oct 2023. The MB also considered a hike by 50bps and the final decision was a "close vote", BSP Governor Eli Remolona Jr. said.

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The MB saw a need to make a timely and pre-emptive policy move to protect price stability. The key rate hike is intended to anchor inflation expectations and address the buildup of second-round effects. A measured rate hike will still accommodate economic recovery in the medium term, the MB said.

The Philippine central bank will do what is necessary to contain inflation, Remolona told Bloomberg TV on Friday. Normally, it would be a succession of small policy rate increases, but it will depend on how big the spillover effects are. The spillover effects are still modest, he said.

Inflation

The MB said that the inflation outlook has worsened due to the ongoing conflict in the Middle East. Rising global oil and fertiliser prices have started to pass through to domestic fuel and food prices. Core inflation has continued to increase, indicating a broadening of underlying price pressures.

The central bank's latest forecasts are of a higher inflation trajectory. Average headline inflation is seen to exceed the 4.0% upper end of the target range both this year and next year. There has been a further increase in inflation expectations, which boosted the risk of de-anchoring from the 3±1% target.

The BSP's latest inflation forecasts hence are 6.3% for 2026 and 4.3% for 2027. The previous CPI growth projections were 5.1% and 3.8%, respectively.

Economic growth

Remolona also said that they expect economic growth in the range 4.5-4.6% this year. Although slightly better than a previous forecast of 4.4%, this performance is significantly below the economy's potential. The GDP is anticipated to rise by 6% in 2027. The government targets real GDP growth of 5.0-6.0% in 2026 and 5.5-6.5% in 2027.

The BSP is currently more confident that fiscal policy will be more stimulative than before, Remolona told a press briefing.

Exchange rate

The peso is trading at USD/PHP 61.166 at the time of writing, which compares with USD/PHP 60.498 on Apr 23, the date of the latest MB meeting.

The BSP does not have a target for the level of the USD/PHP exchange rate, the governor told Bloomberg TV. The central bank hence does not assign a special significance to the 60 level. Instead, it looks at by how much the exchange rate moves.

Further reading

Press release after Apr 23 monetary policy action

Schedule of monetary policy meetings

Highlights of MB meetings on monetary policy

Monetary Policy Report

• Next MPC meeting: May 5-6, 2026
• Current policy rate: 3.75%
• EmergingMarketWatch forecast: 3.75%

Rationale: Monetary Policy Council comments these days are full of caution and increase the likelihood the council will remain on hold for some time unless the Iran war and its impact on global markets clear up improbably quickly or there is a new massive exogenous shock that threatens to cause serious inflation problems. The two most recent comments both suggest the council will definitely wait until the July meeting, when the updated inflation projection is published, before it charts out its future. That should mean all near-term inflation and economic developments are largely looked past, though the outlook later this year and beyond will become increasingly important.

MPC member Marcin Zarzecki spoke on Apr 16 and said the shock from the conflict in the Middle East meant the council was more likely to hold rates or even hike them than to cut them, according to an interview for Reuters. He said the council should take a 'wait and see' stance but that the path should be clearer in July. Zarzecki also said the impact of the Iran war could be a temporary breach of the upper limit of the inflation target. "The hard data from the March projections offer some hope that inflation will remain within the acceptable tolerance band," he was cited saying. "Nevertheless, we are at a point where no scenario can be ruled out in advance."

On Apr 17, fellow council member Henryk Wnorowski said rates would likely be held until at least the July projection, though this didn't mean there would be a chance of policy then, according to an interview for the Polish Press Agency. Wnorowski said he rather believes rates would stabilise in the longer term, though that timeline would be clarified after the July projection was digested. Wnorowski said the risk of second-round effects was moderate and inflation would probably not exceed the upper limit of the inflation target range (3.5%) through July, though there was no justification for rate cut talk, especially as he didn't think the government's fuel price cuts would reduce inflation expectations sharply.

Earlier in April, NBP and MPC chair Adam Glapinski, whose view is paramount, said that he is optimistic about the outlook and that the inflation shock from the war in Iran should not be as high as that after Russia's Ukraine attacks, but he also that rate hikes could come in a worst-case scenario. Glapinski said he didn't expect any changes in interest rates in the near future.

Overall, as long as the Iran war remains highly unpredictable, the MPC is likely to sit on its hands. That period now looks likely to last until at least July. At least one MPC member has said inflation would have to exceed 3.5% y/y for a few months before a hike would be contemplated, meaning if there would be a hike, it would not probably come until late Q3 at earliest, but assuming the war staggers to a conclusion in the coming couple of months, this doesn't seem highly likely. But a return to pre-war optimism on inflation also doesn't seem likely. The upshot thus seems likely to be flat rates this year, in our opinion.

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: Jun 11, 2026
• Current policy rate: 37.0%
• EmergingMarketWatch forecast: Hold
• Rationale: Sticky services inflation, lingering war-related risks, and fragile FX reserves warrant cautious hold

We expect the CBT to leave its policy rate unchanged at 37.0% at the forthcoming MPC meeting and to return to one-week repo funding, after having suspended those auctions following the outbreak of the Iran war.

Our latest inflation model set gives an early signal of 3.1% m/m for the April inflation median, 3.2% for the average, and a 2.6-3.7% range. We think some of the price pressure that failed to appear fully in March because of the war was effectively pushed into April. In that context, the increases in electricity and natural gas tariffs, together with marked price rises across several items, including bread and pharmaceuticals, should add visible pressure to the monthly figure. We remind that any m/m reading above 3.0% would break the ongoing y/y disinflation trend.

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That said, the next MPC meeting is still roughly six weeks away, and the Iran conflict has not yet been settled. This keeps war-related upside risks alive for the CBT, we note. The CBT has restored part of its FX reserves, but a renewed escalation could quickly undo those gains. We also expect tourism revenues to come under pressure, in line with local media reports. Domestic political risk should not be overlooked either. Pressure on CHP municipalities has increased sharply over the past two months, while the interior ministry has opened a probe into CHP's Ankara mayor and leading potential presidential contender, Mansur Yavas. Against this backdrop, the next major flashpoint could be the absolute nullity case, whose hearing was postponed to May 6. Such an outcome could put further pressure on the CBT's already thin reserve buffer.

Overall, there is still considerable time before the next MPC meeting. We will therefore continue to follow market conditions closely and revise our forecast if the risk picture changes materially.

Summary of April rate-setting meeting (to be released on Apr 30)

MPC rate decision in April

Quarterly Inflation Report for Q1

Monetary policy strategy for 2026

• Next MPC meeting: June 16, 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 for the Apr 28 meeting. However, the MPC surprised by noting that short-term inflation projections have risen due to developments in the Middle East proving more adverse than expected at the last policy meeting, and that it will be particularly attentive to factors that could lead to greater transmission or persistence of inflation. While the MPC maintained that the future path of the monetary policy rate will be assessed meeting by meeting depending on how events unfold, just like it said in March, the prior comments hint at a higher chance of a rate hike in the short-term than was considered in consensus polls and market prices.

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In what follows, we summarize the post-sitting statement in the order in which it was presented.

External developments - The international outlook remains marked by uncertainty surrounding the war in the Middle East. Oil price futures still point to a decline, but the prolongation of the conflict has increased the risk that prices will remain elevated. For now, the main effects are concentrated in observed inflation and its projections, which has reinforced caution among central banks. On the activity side, the outlook shows no major changes, although with differences across regions.

Financial - Global financial markets have posted a favorable performance due to the perception that the global economy will remain resilient. In most economies, including Chile, equity markets have recovered and currencies have appreciated against the US dollar. As for commodities, oil prices have stood above the levels projected in the March Monetary Policy Report. Meanwhile, copper prices have increased, standing at around USD 6 per pound.

Real economy - The economic activity reading for February was worse than the central bank projected, mainly explained by supply-side factors linked to natural resources. Regarding spending, high-frequency indicators for Q1 suggest that private consumption performed in line with expectations, while gross fixed capital formation slowed somewhat more than anticipated, particularly in its machinery and equipment component. Still, investment plan trackers reported a significant increase in the volume of investment projects for the 2026-2029 period. In the labor market, the unemployment rate showed no change and job creation remained limited.

Inflation - The CPI inflation reading of 2.8% y/y for March was above the BCCh's expectations due to a larger increase in volatile prices excluding energy. Core inflation of 3.4% y/y was as expected. Consensus polls had expected inflation two years ahead at 3.0%-3.2%.

Guidance - Developments in the Middle East have been more adverse than anticipated in the central scenario of the March monetary policy report, increasing the probability of more negative outcomes for inflation and global activity. Domestically, short-term inflation projections have risen. The MPC will be particularly attentive to factors that could lead to greater transmission and/or persistence of inflation.

(The following paragraph is 100% unchanged from the March post-sitting statement)
The macroeconomic scenario remains subject to a higher-than-usual degree of uncertainty. Therefore, the MPC considers that continuous assessment of alternative scenarios will be necessary, in which the response of the global and local economy may generate inflationary pressures different from those expected and require changes in monetary policy. Accordingly, the future path of the MPR 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.

• Board's meeting: Apr 30, 2026
• Current policy rate: 11.25%
• EmergingMarketWatch forecast: 11.75%-12.00%
• Rationale:Conditions point to a hike of at least 50bp if the Apr 30 meeting proceeds, with inflation expectations remaining elevated. Decree 2520 of 1993 requires FinMin presence for quorum; Germán Ávila's attendance remains unclear after signaling a conditional return.

BanRep would be preparing for its third rate increase of the year at tomorrow's meeting, if it takes place. Over the month, we have discussed the implications of the finance minister's resignation to the board, given that he also serves as the chair of the central bank's board. Under BanRep's bylaws (Decree 2520 of 1993), the minister must be "physically present" at a monetary policy meeting. If the minister is not present, we understand that the central bank would not be able to convene and decide on monetary policy, as no statutory substitute or acting minister mechanism has been confirmed to satisfy this requirement. Local press reported last week that Finance Minister Germán Ávila would attend. Still, as we noted, his remarks suggested he would do so under certain conditions, including one that Governor Leonardo Villar has not accepted: to negotiate with the government. For now, it is unclear whether the minister's conditions will be accepted or when his return will take place. What does appear defined is that the government will seek to reopen the debate inside the board, though the specific procedural changes it intends to introduce remain unclear.

For now, the conditions support a non-trivial move of 50bps in the policy rate. According to the latest Fedesarrollo and BVC financial opinion survey, expected inflation for April 2026 is 5.63%, and for April 2027 it is 5.76%, while end-2026 inflation is revised to 6.40%. In other words, prices would remain elevated across the near-term horizon, and inflation this month would have accelerated. Elevated 12-month inflation expectations also suggest partial unanchoring against the central bank's 3% inflation objective. Note that this is above the 5.7% median in BanRep's own economic expectations survey, which stood at 5.8% in March. It is an unusual inflation path for the market to price in; it appears the market is discounting that the minimum wage shock of this year's magnitude will not repeat in 2027. It also appears the market assumes monetary policy would allow a gradual decline in inflation. We note this is an optimistic assumption if a left-wing government were to win the presidency. In the meantime, this expected path for prices argues for keeping rates higher for longer to prevent prices from rising persistently.

Separately, the interest rate this month stood at 17.8% for consumer credit, according to Financial Superintendency figures, with the usury rate at 26.8%. That was an 80bp increase versus March and larger than the 58bp m/m increase at end-February, even though the central bank raised its policy rate by the same amount at the Jan 31 and Mar 31 meetings. In other words, credit repriced more aggressively even though BanRep delivered the same 100bp move in each meeting. Hence, the credit market is showing higher sensitivity in the near term to monetary policy, a warning sign for a central bank that needs a tight stance but cannot overlook employment and the economy.

As a result, the size of the next move will depend on how far the board majority, Leonardo Villar, Bibiana Taboada, Olga Acosta, and Mauricio Villamizar, wants to extend its frontloading strategy. We believe another 100bp increase would weigh on household and corporate balance sheets and would further tighten the credit market, thereby affecting the financial system. Still, an increase below 50bps would be marginal for further re-anchoring expectations, given there is no meeting scheduled for late May.

Overall, President Petro has recently threatened to raise the minimum wage again if rates continue rising. It is unclear whether this is only another threat. The Council of State has not yet decided on whether the current 23% increase is legal. We note that presidential discretion in decree-based decisions remains largely unconstrained. In conclusion, we maintain our forecast that tomorrow's meeting, if it occurs, would deliver a policy rate increase of at least 50bps as our base case, while not ruling out a 75bp move.

• Current policy rate: 4.00%
• Next monetary policy meeting: May 25, 2026
• Expected decision: Hold

The fighting with Iran and Hezbollah has completely changed the path of the monetary policy and any monetary easing is likely to be delayed towards late H2 or even early next year. The next decision is set to take place on May 25 and despite the reached ceasefires with Iran and Hezbollah, the geopolitical situation remains fragile and therefore we believe that the MPC would not make any moves at the end of May. It is yet unclear what the effects on inflation would be and therefore it is very difficult to predict at this point when and if the monetary easing would continue this year but in case of benign inflation, a rate cut might be advanced towards mid-year, in our opinion. The latest central bank forecast assumes 1-2 policy rate cuts by Q1 2027 as compared to predicted two rate cuts by the end of 2026 in the previous projection from January. Governor Yaron has suggested that some easing might indeed take place but warned that certain conditions need to be met.

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Inflation eased to 1.9% y/y in March remaining at the mid-point of the 1-3% target range for the third consecutive month and within the band ever since August. However, some technical effects might have pressed the CPI growth in March due to reporting prices in the war period. Moreover, the upward pressure from the spike in world oil prices was not fully seen in the March prints because gasoline prices are regulated and were already fixed for March before the war began. We estimate a relatively strong direct impact of some 0.4pps in April. Another reversal towards a stronger tightening of the labour market due to absences from work and a spike in the number of reservists and general transportation disruptions should also have an inflationary impact. The housing component has been an inflation driver 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. On the other hand, the shekel gained strong after the end of fighting was announced and should support inflation easing.

GDP increased by 3.3% in 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 March developments have likely pulled GDP in the contractionary area in Q1. 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. The finance ministry estimated at the end of March that the economy has contracted by 2.5% in saar (seasonally-adjusted annualised rate) and by 9.5% y/y in Q1 due to the war. It raised concerns that economic recovery might start taking longer and be limited in scope given that security events have been taking place quite often recently. The ministry warned that there is a risk that the ongoing series of shocks might hurt the economy's growth potential with no ability to return to historical growths due to diversion of investment, a decline in labour productivity as a result of the ongoing mobilization of reserve forces and the vulnerability of some combatants, as well as heavier public debt and tax burden. The BoI has not made such comments but has been warning of lack of growth drivers in the fiscal policy. In any case, 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: Jun 5
• Expected decision: hold
  

On Apr 24, the NBK left the base rate on hold at 18%, in line with expectations. Predictably, the bank was optimistic about the recent deceleration of inflation. It highlighted exchange rate dynamics, lower credit growth, its own tight stance, and anti-inflation measures by the government as decisive factors. It also noted the impact of the tariff and fuel price hike moratorium, though the latter has now expired. In this context, tariff reform and fuel prices can provide an upward push from Q2 onwards, which the NBK has acknowledged.

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The bank also maintains a rate cut would have been premature, as core and seasonally adjusted inflation are still elevated compared to historical trends. Households' inflation expectations remain high as well and the Middle Eastern conflict implies potential for escalating geopolitical volatility. At this stage, the NBK is wary of higher import prices, particularly when it comes to fertiliser and food. Domestically, the quasi-fiscal stimulus is expected to strengthen in H2, which also has inflationary implications.

Looking forward, the NBK sees scope for monetary easing, though it has insisted a rate cut will have to be preceded by consistent disinflationary tendencies. In a recent comment, deputy governor Baymagambetov said easing will be considered in June. Nevertheless, he remained cautious in his statements, stressing that price stabilisation has not been achieved yet. At present, we think the easing cycle is more likely to begin in H2, but near-term inflation dynamics will be important to the timeline.

• 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: BNM to remain on hold until inflation remains in line with current forecast range of 1.5% to 2.5%

BNM is likely to maintain a rate freeze despite the growing impact on the economy from the protracted Iran War, in our view. 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. However, the cost of the fuel subsidy has recently escalated ten-fold to MYR 7.0bn per month from MYR 700mn before the crisis, which has prompted the government to start considering spending cuts in order to reduce the impact on the deficit.

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Furthermore, recent inflation figures show that CPI inflation accelerated to 1.7% y/y in March from 1.4% y/y in February, whereas PPI inflation rose by 1.1% y/y in March compared to a -3.4% y/y decline in February. In addition, official trade data showed that export growth decelerated to 8.3% y/y in March compared to 13.6% y/y in February. Thus, there are growing signs that the impact of the Iran War might be bigger than anticipated, especially as there is still no final resolution to the crisis as of Apr 29.

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."

Overall, we do not expect the BNM to do any changes to the policy stance in the May meeting, but if oil prices continue to creep higher, or the government is forced to scale back fuel subsidies due to their mounting costs, we think that the BNM might consider a rate hike in the second half of the year. The economy remains in a good shape to endure a potential rate hike after it expanded by 6.3% y/y in Q4 2025 and forecasts for overall growth in 2026 remain in the 4.0% to 5.0% range.

It should be noted that Malaysia remains relatively isolated from oil price volatility given that it maintains a fixed price for RON95 petrol through subsidies. RON95 accounts for almost the entire weight of fuels in the CPI basket as diesel is seldom used by consumers. However, the rising costs of diesel for businesses and the impact of dwindling fertilizer supplies on food prices are both expected to put pressure on inflation. In our view, there is potential for CPI inflation to overshoot BNM's current forecast for CPI inflation which is in the range of 1.5% to 2.5% in 2026. If monthly CPI inflation exceeds 2.5% y/y, we think that the BNM will start to consider rate hikes to stabilize inflation expectations. However, we don't think that the BNM will do any changes in the next few policy meetings at least.

Further Readings

Previous OPR decisions

Quarterly Bulletin Q4 2025

• Next MPC meeting: May 6, 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 May 15 MPC meeting, and probably wait until Q4 before considering a cut, in our view. The central bank maintained the key policy rate at 6.50% at the Apr 7 MPC meeting, in line with unanimous market expectations. The decision reflects a sharp deterioration in the short‑term inflation outlook following the escalation of the Middle East conflict and the resulting surge in global energy prices. According to the NBR, the balance of risks has shifted decisively upward, with inflation now expected to increase through June, reaching levels higher than previously anticipated due to fuels and elevated oil and gas prices.

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Headline inflation picked up to 9.87% y/y in March from 9.31% y/y in February and the central bank now sees a temporary re‑acceleration in Q2 driven primarily by imported energy costs. This marks a significant change from earlier projections, which anticipated a smoother disinflation path supported by base effects and administrative measures. The NBR's February Inflation Report did not incorporate the current energy shock, nor the government's updated gas price mechanism and automatic markup caps for basic foods.

For Romania, the transmission of oil prices surge was immediate: fuel prices have risen sharply, and the NBR estimates that higher oil and gas prices will keep inflation elevated through June. Local economists now expect fuel‑driven inflation to add 0.5-1pp to headline CPI in 2026, consistent with international estimates of a 10% oil price increase.

Governor Mugur Isarescu previously said that easing was not appropriate in the short term, stressing that the central bank's priority remains inflation control and policy credibility. He warned that a prolonged conflict could have severe consequences for the Romanian economy. Market expectations have shifted accordingly, some economists seeing no cuts in 2026, while others predicting easing to start at the end of the year. Given the new inflation trajectory and the NBR's hawkish tone, we now expect the first rate cut in Q4.

• Сurrent policy rate: 15.0%
• Next monetary policy committee meeting: Apr 24
• Expected decision:50bp cut

Two days ahead of the next board meeting we expect the CBR to cut the policy rate by 50bps again on Friday. This view is in line with the consensus in Russian media, where more than 90% of analysts expect such a move. At the same time, pro-inflationary risks appear to be increasing, so we expect the CBR to send a less dovish signal to the market. In practice, the regulator is likely to reaffirm its commitment to keeping monetary policy tight for longer and to guide expectations toward possible pause in rate cuts later this year. The latest CBR Trend bulletin, published last week, consistently removes arguments that could support a dovish interpretation of current data and adds hawkish ones. These were persistent components above target, inflation expectations are not anchored, and external shocks are pro-inflationary. That said, we believe the Board will still consider three options, including holding the rate or delivering a larger cut of 100bps.

The CBR is also to release an updated medium-term macro forecast. We expect downward revisions to GDP growth, but somewhat higher projections for the average policy rate and credit activity. The key question is whether the inflation forecast will also be revised. SAAR inflation in Q1 is close to the lower bound of the forecast range, while core inflation remains around 4%-5%. At the same time, risks are shifted toward H2/2026 and may be partly contained by a stronger exchange rate. On the other hand, inflation expectations remain elevated. More importantly, fiscal policy and external factors may support demand. Budget spending is running significantly above the planned path, and the situation in the Middle East is pushing oil prices higher, supporting income growth. Any revision would suggest that the CBR views the disinflation trend as expected, which would be inconsistent with its policy approach over the past three years. Therefore, the CBR may choose to keep its CPI inflation forecast unchanged in April.

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The central bank describes the current decline in the contribution of demand to inflation as temporary, drawing parallels to 2018, when the VAT rate was also increased. As a result, SAAR inflation, which rose to 6% in March from 5.8% in February, with Q1 price growth at 8.8% against a 10% forecast, may increase further as the demand component recovers. This recovery may be supported by the previously mentioned factors of the war in Iran and higher budget spending. In our view, inflation expectations are unlikely to have a significant impact on CBR's decision this time, as their relative decline from elevated levels is largely a natural response to lower observed inflation after the peak at the beginning of the year. Although Governor Nabiullina appears to take a balanced view, political factors may exert stronger pressure in this meeting compared to previous ones. President Putin has expressed concerns about insufficient economic growth and may also be dissatisfied with negative public sentiment ahead of the parliamentary elections in September, potentially increasing pressure on the central bank to ease monetary conditions.

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The main argument in favor of softer monetary stance is the cooling of the economy. According to EconMin estimates, monthly GDP growth has remained in the red zone for two months in a row. However, it is debatable whether a lower key rate will help renew economic growth, which is constrained by labour shortages and the crowding out of the non-defense sector. Political pressure, as mentioned, is another factor for a rate cut.

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In its view on the credit segment, the CBR uses slightly more dovish language, but balances it by pointing to faster retail lending and continued fiscal support. Corporate lending growth remained at 12.2% y/y in March, about half of the pace seen in 2024. Household lending picked up slightly in March, but this is driven by fiscal factors such as subsidized mortgages and by regulatory changes, including tighter rules on car imports, rather than by underlying demand dynamics. Overall, the data suggest that the required level of monetary tightness has been reached and the credit channel is no longer exerting strong pro-inflationary effect. But the wording that developments are "within the official forecast range" сan mean that monetary policy is working as planned and does not need big changes.

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Among other factors ahead of the upcoming meeting, risks related to the crisis in the Middle East and the war in Iran cannot be ignored. The current situation supports Russia's export revenues, but at the same time creates risks through cost channels and expectations, which the economic authorities highlight separately. In addition, the duration of the conflict's active phase is still highly uncertain. This uncertainty also makes it difficult to assess the path of fiscal policy. The freeze of FX market operations under the fiscal rule and the still-unresolved plan to revise the cutoff oil price make the outlook for budget spending unclear. In this context, a 50bp rate cut remains the most balanced option, taking into account both the uncertainty and risks on one side and the current trends in the economy and inflation on the other side.

• Next MPC announcement: May 28, 2026
• Current policy rate: 6.75%
• EmergingMarketWatch forecast: 7.00%

With the war in the Middle East far from over, the MPC faces a markedly different decision in May-whether to hold rates or begin tightening. This represents a sharp shift from the start of the year, when the policy debate was centred on a 25bps cut versus a hold. We now think that the SARB may need to deliver a 25bps rate hike at the May MPC meeting, taking the repo rate to 7.00%, if geopolitical tensions persist or if there is no clear path toward resolution in the short term that will allow more predictability of the economic implication from the war. While uncertainty remains elevated, the balance of risks has shifted sufficiently to justify a pre-emptive policy response aimed at anchoring inflation expectations, in our view.

The latest inflation data reinforce the view that price pressures have bottomed and are beginning to turn. Headline CPI edged up to 3.1% y/y in March from 3.0% previously, in line with expectations and still virtually in line with the target. However, core inflation rose to 3.2% y/y, while services inflation accelerated more sharply to 4.2% y/y, pointing to a firming in sticky, domestically driven price pressures.

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Looking ahead, the inflation trajectory is expected to deteriorate meaningfully in the near term. The disinflationary impact from fuel has largely run its course and will reverse sharply from April as higher oil prices feed through to domestic pump prices. Our estimates suggest fuel will swing from a negative to a positive contribution to headline CPI, pushing inflation above the upper end of the SARB's tolerance band in the coming months. This aligns with the SARB's own assessment that inflation is likely to peak around 4% in Q2 under the baseline, with risks skewed to the upside under more adverse scenarios.

That said, there are important buffers that provide the SARB with some near-term flexibility. The government's intervention to temporarily reduce the general fuel levy has softened the immediate pass-through of higher oil prices, while South Africa enters this shock from a relatively strong macro starting point which includes inflation at target, a still-positive real repo rate, and an improved fiscal position. These factors have helped the rand retain a degree of comparative resilience despite global volatility, limiting the scale of imported inflation pressures. Moreover, a potential extension of the fuel levy relief for another one to two months could further buy time for the central bank, smoothing the inflation trajectory in the near term. However, finance minister Godongwana has indicated that the current three-month relief window is a "hard" deadline, suggesting that this buffer is temporary and cannot fully offset the underlying shock.

In this context, the SARB's strong commitment to the 3% target and repeated warnings against complacency become increasingly relevant. Governor Kganyago has emphasised that a "wait-and-see" approach carries risks, particularly in an environment where external shocks can quickly feed into domestic prices. Delayed action could allow second-round effects to take hold through wages, services inflation and inflation expectations, ultimately requiring a more aggressive policy response later.

The central bank discussed the potential scenarios in the April Monetary Policy Review. In its severe scenario, a prolonged conflict and sustained energy shock would push inflation significantly higher and more persistent, necessitating a more front-loaded tightening cycle. Importantly, even in less adverse scenarios, the policy path shifts away from easing toward a more cautious or tightening stance.

Recently, the S&P Global, which assigns a positive outlook on its rating for South Africa also expressed concern that a failure to stabilise the Middle East conflict could jeopardise the recent improvements in South Africa's economic performance. The rating agency has scheduled a review on the day after the May MPC meeting. In a downside scenario of prolonged conflict, materially higher inflation and weaker growth would place pressure on fiscal and external balances, increasing the risk of an outlook downgrade. While this is not the base case, it reinforces the importance of maintaining policy credibility. A decisive SARB response could help anchor inflation expectations and support macro stability at a time when external vulnerabilities are rising.

Overall, while uncertainty around the geopolitical outlook remains high, the SARB may be averse to waiting for full clarity before acting. As highlighted by the Governor, waiting does not necessarily reduce uncertainty but increases the risk of falling behind the curve.

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: Jun 24
• Current policy rate: 1.00%
• EmergingMarketWatch forecast: Hold
• Rationale: MPC statement of Apr 29

We think that BOT's Monetary Policy Committee (MPC) will keep the policy interest rate unchanged at 1.00% in its meeting on Jun 24, the third one for 2026. On Wednesday, the MPC voted unanimously (6-0) to maintain the key rate at 1.00%. The decision was in line with expectations.

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The MPC's assessment is that the current policy rate level continues to be appropriate. A key rate change on Wednesday could have created additional risks to the economy or inflation in the future. The lack of clear evidence of a de-anchoring of inflation expectations means that a rate hike would further weigh on the economy, especially the recovering and already vulnerable businesses and households. On the other hand, given the increased geopolitical uncertainty, a rate cut could increase inflation risks and impact medium-term inflation expectations, which may create long‑term risks for the economy. The MPC will monitor closely inflation developments and medium-term inflation expectations.

Economic growth

The MPC projects that GDP growth will decelerate to 1.5% in 2026 from 2.4% in 2025. In February, the BOT had predicted this year's GDP growth at 1.9%. The latest forecast factors in the Middle East conflict, which directly affects growth via raising business costs and eroding household purchasing power.

A higher cost of living and a weakening income outlook are weighing on private consumption. The MPC forecasts that private consumption growth will decelerate to 1.6% in 2026 from 2.7% in 2025. The committee expects expansion by 1.9% next year.

The MPC forecasts that there will be 33.0mn foreign tourist arrivals in 2026, down from 35.0mn projected in Dec 2025. With regard to 2027, the expected number of visitors is 35.5mn, down from 36.0mn predicted previously. The lower number of foreign tourists reflects higher costs and travel constraints. There were 33.0mn visitors in 2025, when the tourism receipts totalled THB 1.4tn. The tourism receipts are projected at THB 1.4tn this year and THB 1.6tn next year.

On the positive side, the MPC expects continued robust growth of merchandise exports this year, helped by global demand for technology products.

This year's economic growth could be higher if there are additional fiscal stimulus measures. The MPC's view is that there is high uncertainty about the economic outlook. There is a need to monitor downside risks stemming from a protracted conflict and supply disruptions.

Inflation

The MPC forecasts average headline inflation of 2.9% in 2026, up from -0.1% in 2025 and -0.5% in Q1 2026. Higher global energy prices and cost pass-through are seen as the primary drivers of the rise in inflation, which is expected to stay above the upper bound of the 1-3% target range for some time. Inflation is predicted to decelerate to 1.5% next year as supply-side pressures ease. The MPC forecasts core inflation of 1.6% in 2026 and 1.5% in 2027 amid higher cost pass-through to the prices of goods and services. Core inflation was 0.8% in 2025.

Nonetheless, the MPC does not expect the increases in prices to be broad-based or persistent, because of limited cost pass-through amid weak demand conditions. The MPC said that medium-term inflation expectations continue to be anchored within the target band.

Nevertheless, the MPC will continue to monitor upside risks to inflation, including high energy prices and protracted supply shortages due to the Strait of Hormuz closure, a stronger-than-expected cost pass-through by companies, as well as a potential rise in medium-term inflation expectations.

In its base case, the MPC forecasts Dubai crude oil price of USD 100/barrel this year and USD 80/barrel next year. These compare with USD 69.4/barrel in 2025.

Exchange rate

The exchange rate of the Thai baht is USD/THB 32.677 at the time of writing, which compares with USD/THB 31.08 on Feb 25, the date of the previous MPC meeting. The MPC attributed the depreciation of the baht to the country's high reliance on energy imports from the Middle East.

We do not expect the exchange rate of the baht to be a factor of decisive importance during the MPC meeting in June.

Further reading

MPC decision of Apr 29

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 central bank (NBU) is likely to leave the key policy rate (discount rate) unchanged at 15.0% tomorrow again. It did so on Mar 19, after cutting the rate by 50bps on Jan 29. At the same time, the NBU has made it clear that a new easing cycle is unlikely to be resumed any time soon, as disinflation stopped, and the geopolitical situation has been more complicated than early this year.

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The headline CPI inflation picked up to 7.9% y/y in March from 7.6% in February, which was somewhat higher than projected by the NBU in January. The higher inflation was mainly due to the Iran war, as fuel price inflation accelerated to 23.4% y/y in March. Core inflation, which inched up to 7.1% y/y in March, also exceeded the NBU's expectations. On the upside, Ukraine has finally secured a new EUR 90bn loan from the EU for 2026-2027, so there is now more certainty about foreign assistance and, consequently, about defence funding.

All 11 MPC members were in favour of another on-hold decision at the Mar 18 rate discussion, which decision the NBU announced the following day. A summary of the meeting was published by the NBU on Mar 30. At the same time, most of the MPC members were in favour of a more cautious approach to policy, compared to the NBU's January forecast. Seven of them spoke in favour of keeping discount rate at 15.0% till the end of 2026, and one even expected a rate hike. Only three MPC members expected more easing later this year.