Divergence of Inflation Shocks and AI Benefits

Emerging markets are experiencing divergence as AI-driven tech demand bolsters exporters like Korea and Taiwan, while others grapple with sticky inflation and high energy costs. Central banks in Asia and EMEA are shifting stances, with Hungary poised to cut rates and Korea signaling a hawkish pivot.

Key Takeaways

• 1.The National Bank of Hungary (NBH) is expected to begin a rate-cutting cycle in June 2026, targeting a terminal base rate of 4.75% by 2027.
• 2.Asian FX reserve concerns are overblown as the decline in import cover ratios is driven by higher energy costs, while an AI tech demand boom is surging exports.
• 3.China's economy shows growth disparity, with strong profit gains in tech and AI-related manufacturing contrasting with struggling consumer-facing sectors.

Table of Contents

• Overview
• Main strategies
• Main changes to our forecasts
• Performance of the main EM asset classes
• EMEA: Hungary on the starting blocks to cut rates
• Status quo for now
• Rate cuts ahead
• Asia: shaking off FX reserve concerns
• China: growth disparity and a resilient CNY
• India: strong demand for USD/INR swap auction
• Indonesia: after the 50bp hike
• Korea: BOK to signal hawkish pivot
• Philippines: BSP to hike in June
• Thailand: rice price hits 14-month high
• Trade ideas
• Interest rates: what's priced in vs our forecasts
• FX: what's priced in vs our forecasts
• Calendar
• Economic forecasts
• Exchange rate forecasts
• Policy rate forecasts
• Red Mount Analytics

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