Borrowing costs

Global credit conditions more negative amid rising borrowing costs and slowing economic growth: Moody’s

He said soaring energy and food costs caused by the conflict in Ukraine are weakening household purchasing power, increasing input costs for businesses and weakening investor confidence.

He said soaring energy and food costs caused by the conflict in Ukraine are weakening household purchasing power, increasing input costs for businesses and weakening investor confidence.

Moody’s Investors Service said on June 30 that global credit conditions had turned more negative amid rising borrowing costs, a protracted conflict between Russia and Ukraine and slowing economic growth. He said soaring energy and food costs caused by the conflict in Ukraine are weakening household purchasing power, increasing input costs for businesses and weakening investor confidence.

“Among sovereign debt issuers, debt sustainability will be particularly challenging for many frontier market sovereigns as their borrowing costs climb, while their economies have yet to fully recover from the pandemic crisis. of COVID-19,” he said.

“Global credit conditions have turned more negative and will be tighter for the remainder of the year amid rising borrowing costs, the prospect of a protracted military conflict between Russia and Ukraine, ‘significantly slower growth in the global economy, soaring energy and commodity prices, further supply chain disruption and increased volatility in financial markets,’ Moody’s said in a report .

As central banks in many countries begin raising interest rates in response to high inflation, financial market conditions are in the midst of a synchronized tightening across all continents. “Financial conditions will continue to tighten as interest rates climb,” the US-based rating agency said.

In May, Moody’s cut the economic growth forecast for G-20 economies to 3.1% for this year and 2.9% for next year, down from its March projection of 3.6%. and 3%, respectively.

“As inflation remains stubbornly high, central banks in advanced and emerging economies will continue to raise interest rates to prevent a further buildup in inflation expectations,” Moody’s said.

In India, the Reserve Bank raised interest rates in two quick successions by 90 basis points to 4.90%. The RBI is mandated to keep inflation at 4% with a 2% bias to either side.

Retail price inflation for May came in at 7.04%, remaining above the Reserve Bank’s inflation target for the fifth consecutive month. In addition, wholesale price-based inflation hit a record high of 15.88% on more expensive food and fuel. WPI inflation remained in double digits for the 14th straight month since April last year.

The RBI earlier this month raised the average inflation projection for the current fiscal year by 100 basis points to 6.7%. Stressing that the downside risks to economic growth are unusually high, Moody’s said many developments could cause the macroeconomic outlook to deteriorate further.

“Central banks that are lukewarm in their response to inflationary pressures could face the prospect of an unanchoring of inflation expectations that would result in a wage-price spiral and potentially a stagnant economy,” he added. .

Other risks include the possibility of commodity prices climbing even higher, longer-lasting supply chain disruptions, a deeper-than-expected slowdown in the Chinese economy, and more dangerous new strains of COVID-19. which lead to a new health emergency and restrictions on mobility and activity.

This unusually high uncertainty will translate into volatility in energy prices and financial markets over the next six to eight months, Moody’s noted.