Inflation is a Greater Policy Test for Emerging-Market Sovereigns

Proshare

Sunday November 28, 2021 / 07:00 AM / by Fitch Ratings / Header Image Credit:  Fitch Ratings 

 

Higher inflation is generally credit negative for sovereigns, but presents particular risks for emerging markets (EMs), as they often face higher and more volatile inflation than developed markets (DMs), and are exposed to greater currency instability, says Fitch Ratings.

 

Fitch believes global goods price pressures will ease from early 2022, but inflation could remain elevated in many markets if services prices pick up. Inflating away debt does not constitute a default, but defaults are correlated with high rates of inflation.

 

Proshare Nigeria Pvt. Ltd.

 

Higher inflation is a negative factor in Fitch's Sovereign Rating Model, reflecting the risk of economic overheating, as well as growing macroeconomic imbalances in labour or asset markets or in the external accounts. It may also raise concerns about macro policy credibility, especially in EMs.

 

The impact of higher inflation for public finances can vary. Both revenue and spending will be affected and may be subject to policy responses. However, EMs that are less able to issue debt in their own currency may be vulnerable to inflation-driven depreciation that raises the burden associated with their foreign-currency debt. Monetary policy can also be impeded by high levels of dollarisation.

 

The capacity to anchor medium-term inflation expectations when faced with an inflation shock varies across EMs, but is generally weaker than in DMs. In sovereigns with poor central bank transparency, patchy records of complying with inflation targets, or monetary authorities that are perceived by investors to lack sufficient policy credibility, inflation shocks may take longer to dissipate.

 

High inflation can have more disruptive political effects for EMs than in DMs, which can weigh on sovereign ratings. However, fiscal moves to shelter populations from the impact of inflation may also hurt public finances.

 Proshare Nigeria Pvt. Ltd.

Related News

1.      Extent of Rising Inflation, Rates to Dictate US REIT Credit Effect

2.      Federal Reserve Issues FOMC Statement and Implementation Note From Its November 2021 Meeting

3.      Is a More Hawkish Fed Good for Income Investors?

4.      Fiscal 2022 US State Tax Cuts May Complicate Budgets Longer-Term

5.      Federal Reserve Issues FOMC Statement and Implementation Note From Its September 2021 Meeting

6.      Policy Normalisation and Potential Impacts on Emerging Markets

7.      Desperate Policy Actions to Tackle Inflation in the US Will Send Shockwaves

8.      Federal Reserve Issues FOMC Statement and Implementation Note From Its June 2021 Meeting

9.      US Inflation Surges to 13-Year High of 5%

10.   Federal Reserve Board Issues May 2021 Financial Stability Report

11.   Let's Talk African Trade and The US Elections

12.   Federal Reserve Begins 2020 Census of Finance Companies and Other Lenders

 

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.
READ MORE:
Related News
SCROLL TO TOP