Frontier Markets Currencies Pressured by Strong US Dollar

Frontier Markets Currencies Pressured by Strong US Dollar

Frontier-market currencies have come under sustained pressure in recent months as the US dollar surges in response to Fed monetary policy tightening, according to Fitch Ratings.

Weak currencies and rampant inflation in frontier markets have left central banks there with little choice but to continue to increase their interest rates as well, the Ratings firm stated.

According to the global rating agency, frontier markets’ domestic currencies depreciated further against the dollar and inflation has continued to rise in many frontier markets as global inflationary pressures have been passed through to domestic prices – the frontier markets’ average annual inflation rate reached 13.4% in August.

In response to rising inflation across the globe, central banks in 19 of the 35 Fitch-rated frontier markets have raised policy interest rates again. READ:Dollar Trades Stronger Against Major Currencies

It is noted that only Angola and Uzbekistan cut policy rates. Angola has benefitted from a combination of high oil prices as an oil exporter, a strong kwanza, and declining inflation, enabling the central bank to cut its policy rate by 50 basis points to 19.5% in September.

The Central Bank of Uzbekistan cut its policy rate by 100bp to 15% in July, continuing the reversal of the 300bp rise that followed Russia’s invasion of Ukraine.

GDP outturns for 2Q22 present a mostly positive picture as many frontier market countries – such as Armenia, Azerbaijan, Mongolia, Maldives, Mozambique, Namibia, Nigeria and Vietnam – have recorded strong annual growth.

Crisis-affected Sri Lanka recorded the lowest outturn among all frontier markets, at -8.4% year on year, and Paraguay also recorded outright year on year contraction.

# Frontier Markets Currencies Pressured by Strong US Dollar#

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