Frontier markets caught in a tightening race as inflation heats up

April 06, 2023 (MLN): Central banks in the larger frontier markets (FM) continue to tighten monetary policy as annual CPI inflation rates climb while others are keeping interest rates elevated despite CPI inflation cooling, as illustrated in Fitch Ratings’ latest Frontier Vision. 

FM central banks tightened monetary policy further in 1Q23 with interest rate rises in Azerbaijan, Ivory Coast, Ghana, Guatemala, Jordan, Kenya, Namibia, Nigeria, Pakistan, Papua New Guinea, Rwanda, Senegal, Sri Lanka, Tunisia, and Zambia.

Only the central banks of Angola and Tajikistan bucked this trend and cut their policy rates – to 17% and 11%, respectively. As global inflationary pressures stemming from commodity and food prices ease, annual CPI inflation rates have fallen in recent months in Armenia, Azerbaijan, Costa Rica, Ivory Coast, Gabon, Georgia, Jamaica, Rwanda, Senegal and Sri Lanka, among others, the report added.

"Despite the US Federal Reserve raising its benchmark interest rate twice this year, some FM currencies have appreciated recently vs the US dollar – including the Armenian dram, Costa Rican colon and Georgian lari," it read.

However, currencies in Kenya, Mongolia, Pakistan, Rwanda, Suriname and Zambia have weakened against the dollar in recent months.

To note, Fitch's quarterly ‘Frontier Vision’ chart pack tracks high-frequency macroeconomic data for the countries included in J.P. Morgan’s Next Generation Markets (NEXGEM) Index. 

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