Frontier Markets tackle inflation with higher interest rates: Fitch Ratings

October 13, 2021: Central banks in Frontier Markets (FMs) have stepped up their efforts to contain rising inflation caused by ongoing supply-chain disruptions, logistical issues and soaring commodity prices, as shown in Fitch Ratings latest ‘Frontier Vision’ chart pack.

While a number of central bankers continue to view the pick-up in inflation as short-lived, many are tightening monetary policy to reduce the risk of transitory increases becoming more permanent.

Interest rates have already risen in Angola, Armenia, Azerbaijan, Belarus, Georgia, Pakistan, Paraguay, Sri Lanka and Tajikistan, among others. Domestic economic activity has also recovered strongly in many FMs, including Georgia, Costa Rica and Belize, although this trend has not been uniform across all FMs. At the same time, labour markets have had rapid annual employment growth increases in 2Q21 in many FMs, such as in Azerbaijan, Belize, Costa Rica, Georgia and Senegal.

Fitch's quarterly ‘Frontier Vision’ chart pack tracks high-frequency macroeconomic data for 36 countries included in J.P. Morgan’s Next Generation Markets (NEXGEM) Index, covering GDP, industrial production, exports, imports, retail sales, employment, unemployment, consumer and producer price inflation, exchange rates, policy interest rates, money supply and international reserves.

The charts in the report cover five years of historical data while the choice of data series has been harmonised as far as possible across all countries to facilitate comparisons. The index comprises countries representing sub-Saharan Africa, Latin America and the Caribbean, the Middle East and North Africa, Europe, Asia and Oceania. These are typically smaller economies with less-developed capital markets than those in mainstream emerging-market bond indices.

Fitch Ratings