August 24, 2011
Emerging Nations Seek To Bolster Currencies
Some emerging nations have stepped into the market this month to prevent steeper declines in their currencies.
The darkening economic outlook has turned the status quo for emerging-market currencies upside down. In recent weeks Turkey, South Korea and Indonesia have taken or forewarned of measures to curb their currencies' slides after global growth sent investors fleeing riskier assets, including equities and emerging-market currencies.
These central banks and others want to prevent their currencies from swinging sharply in either direction—too steep a depreciation could scare off long-term foreign investment, while a too-strong currency hurts exports. But a global slowdown could simplify the bankers' task, as emerging nations may need to put in fewer controls to head off strength in their currencies if investment flows moderate.
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"Most emerging markets still need external financing, and if they felt like that wall of money is suddenly withdrawing, they might loosen up in terms of their controls," said Sara Zervos, a senior portfolio manager at Oppenheimer Funds.
South Korean authorities earlier this month said they would step up monitoring of local financial markets, including conditions in the foreign-exchange market, amid heightened volatility. Currency dealers suspected Korea's central bank of selling dollars to support the won amid a plunge in the local stock market in early August. The won has weakened more than 2% this month against the dollar, though it still is up for the year.
Turkey's central bank cut rates and bought dollars earlier this year in order to weaken its currency. In recent weeks, the bank has canceled U.S. dollar-buying auctions and instead began auctions to sell dollars. The central bank kept its benchmark rate on hold Tuesday. The lira has fallen nearly 5% since Aug. 3 and is down about 15% this year.
Some Asian central banks, including Indonesia's, also have been playing a balancing act, though on a more subdued scale. This month, Bank Indonesia said it will buy back rupiah-denominated government bonds from investors if it is approached and said it will sell dollars and use the rupiah proceeds to fund the buybacks. Dealers also suspected Indonesia's central bank of intervening in the market by selling dollars earlier this month.
Analysts say the trend is still toward stronger emerging-market currencies as long as developing economies see robust growth. They add that any efforts by emerging-market central banks to fight depreciation are likely to be short-term, and more stable markets may erase the need to do so at all.
http://www.einnews.com/news-EmergingMarkets
