Emerging Insight: Frontiers – managing flows

Research evidence excerpt

Emerging Insight: Frontiers – managing flows

Accessible version

Emerging Insight

Frontiers – managing flows

Key takeaways 20 May 2026

GEM Fixed Income Strategy &• LKR adjustment likely sufficient for current oil costs. Support to come from 100bp

Economics CBSL hike and pending CA improvements

Global

• Inflation spike to offset bulk of LKR weakness to keep 2026 USD GDP close to "higher

Vladimir Osakovskiy >>

upside" of 2025 vs priced "intermediate" EM Sovereign FI/EQ strategist

Merrill Lynch (DIFC)

• UZS will likely see renewed support from sov/corp EXD issuance. Rate cut is probably +971 4 425 8291

on hold due to global market volatility vladimir.osakovskiy@bofa.com

David Hauner, CFA >>

Global EM FI/FX Strategist

By Vladimir Osakovskiy MLIdavid.hauner@bofa.com(UK)

Exhibit 1: Sri Lanka inflation spike to support 100bp rate hike Claudio Irigoyen

The hike and pending current account improvements should provide greater support to the LKR Global Economist

BofAS

claudio.irigoyen@bofa.com

CPI (%mom, rhs) CPI (%mom, 1Y lag, rhs) CPI (%yoy) See Team Page for List of Analysts

5% CBSL policy rate (%)

12 4

8 LKR: Sri Lankan Rupee 2

4 CBSL: Central Bank of Sri Lanka

0 USZ: Uzbekistani Soum

-2

-4 REER: Real Effective Exchange Rate

-8 -4

Jan-25 Mar-25 May-25 Jul-25 Sep-25 Nov-25 Jan-26 Mar-26 May-26 Jul-26 Sep-26 Nov-26

Source: National Statistical Agency, Bloomberg, BofA Global Research estimates

BofA GLOBAL RESEARCH

Frontiers in focus: managing flows

The YTD LKR weakness seems appropriate and sufficient response to the current fuel

import bill. Any additional LKR pressure would likely require a further increase in energy

costs. Meanwhile, existing current account pressures should start to fade with new

temporary import restrictions as well as stabilizing tourist arrivals.