Frontier markets’ central banks speed up rate-rising cycle – Fitch

Central banks in frontier markets (FM) are taking further steps to tighten monetary policy, raising interest rates at an unprecedented pace.

As consumer and producer inflation rates keep rising and FM currencies continue to depreciate, borrowing costs have increased to levels not seen in a long time.

Since quarter 1 2022, policy rates have increased in Costa Rica, Cote d’Ivoire, Ghana, Jamaica, Jordan, Kenya, Mongolia, Nigeria, Pakistan, Paraguay, Senegal and Sri Lanka, among others.

Only the Central Bank of Uzbekistan has bucked this trend and cut its main policy rate in June by 1% to 16%.

In Sri Lanka, where an economic crisis has sparked a wave of mass protests and political turmoil, annual national consumer and wholesale inflation rates rose in May 2022 to record highs of 45.3% and 70.5%, respectively. CPI and PPI annual inflation rates also increased simultaneously in recent months in Costa Rica, El Salvador, Ghana, Jordan and Rwanda, among others.

At the same time, many FM currencies are losing ground against the US dollar. Nominal exchange rates have been experiencing significant depreciations in Costa Rica, Cote d’Ivoire, Gabon, Jamaica, Kenya, Mongolia, Pakistan, Senegal and Sri Lanka.

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

The charts cover five years of historical data and 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 & the Caribbean, the Middle East & North Africa, Europe, Asia and Oceania.