In accordance with Fitch Ratingsappropriate monetary policy responses, such as raising benchmark interest rates, have helped contain the impact of high inflation on Latin America’s sovereign ratings, although it is important to monitor potential contagion effects.
In addition to the global factors of the high commodity prices and supply-side disruptions, high inflation in 2021 also reflected excessive stimulus in some countries, weaker currencies, and idiosyncratic shocks.
“Inflationary pressures will decrease during this year. Central banks have tightened policy well ahead of expected US rate hikes. 12-month inflation expectations are below current records in major inflation-targeting countries, but close to or above the upper ranges of the goals, which suggests that inflation will only return to target levels in 2023″, the rating agency said in a press release.
“Fitch has not taken negative rating actions based solely on dynamic inflation in 2021-2022. Only 11% of Latin American sovereigns are now on a negative outlook, down from a peak of almost 60% in August 2020, after several downgrades. Only the Outlooks for Uruguay and the Dominican Republic were revised without downgrade. With El Salvador’s recent downgrade to ‘CCC’, only Brazil and Costa Rica remain on a Negative Outlook,” he said.
12-month expectations remain near the top of the target ranges. Photo: Capture Fitch
However, the international agency clarifies that the high inflation is part of the more challenging economic outlook of 2022, coupled with tighter external financing conditions and slowdowns in China and the US.
“We forecast that regional growth will slow to around 2%, although this will not stop more modest fiscal consolidation in several countries (Brazil is a notable exception)”, he highlighted.
The inflation it can generate risks for public finances, such as demands for price controls, subsidies or reduction of selective taxes. It can increase sociopolitical risks, hampering policymaking and reforms.
“We believe such risks are currently contained, but this could change if inflation remains high for an extended period. Protracted or higher-than-expected inflation records could also hamper consumption and lead to further monetary tightening, holding back investment,” Fitch said.
Inflation, rating trends, the public finance outlook, political risks and country-specific issues are discussed in ‘What Investors Want to Know: Latin American Sovereign Securities’, available via the link above.
Source: Larepublica
Kingston is an accomplished author and journalist, known for his in-depth and engaging writing on sports. He currently works as a writer at 247 News Agency, where he has established himself as a respected voice in the sports industry.
