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BUSINESS, Currencies

Emerging Central Banks Step In To Curb Currency Falls

world-currenciesCentral bankers across emerging markets are being forced into action to stem falls in their currencies, especially after China allowed its yuan to weaken to four-year lows.

A JPMorgan index tracking 22 emerging market currencies has hit successive record lows this year.

This poses a dilemma for central banks which until recently were relatively sanguine about currency weakness due to sluggish growth and shrinking exports. But most also want to prevent excessive falls that exacerbate capital flight and inflation.

The following is a list of measures emerging central banks are taking or debating in order to limit currency weakness:

NIGERIA – sells dollars twice weekly to bureaux de change, raising the naira off record lows on parallel markets. Banks must also pay for dollar purchases 48 hours in advance and curbed access to the interbank market to preserve foreign reserves.

UGANDA – raised rates by 150 basis points to 16 percent on Aug. 10, citing inflation risks caused by shilling depreciation . Rates have risen 500 bps since April.

KENYA – has been mopping up shillings from money markets, making it expensive to hold dollars. It has raised interest rates by a total of 300 basis points since June but defied expectations of a 50-bps hike this month.

BRAZIL – has stepped up the pace of rolling over currency swaps aimed at supporting the real, currently at 12-year lows. 1. A source said the government would consider selling dollars through repurchase agreements before dipping into foreign reserves.

RUSSIA – Economy Minister Alexei Ulyukayev said the central bank could pause cutting interest rates at its next monetary policy meeting. The bank has stopped dollar purchases to reduce pressure on the rouble

SOUTH AFRICA – will consider intervening in foreign exchange markets to ensure “orderly market conditions”, the central bank said after the rand plumbed record lows

SERBIA – intervened on Aug 24 to stem dinar losses, selling euros for the first time since April.

TURKEY – on Aug 29 raised reserve requirements on banks’ short term forex borrowing, upped limits on lenders transactions with the central bank and raised interest rates on banks’ lira deposits. Earlier it had said it could increase daily dollar auctions by as much as $70 million above the pre-announced minimum.

CHINA – will tighten rules on trading currency forwards from October to curb speculation and volatility, sources said on Sept 1. The central bank has repeatedly intervened to stabilise the yuan since a shock Aug. 11 devaluation.

CHILE – has not intervened to support its currency, but on Sept. 1 the central bank signalled an interest rate rise by end-2015 to ward off inflation caused by the peso’s fall to 12-year lows.

SOUTH KOREA – has intervened on and off to steady the won . Finance Minister Choi Kyung-hwan said on Aug 20 that he was looking into possible responses should risks from the yuan devaluation increase.

INDONESIA – has changed auction mechanisms of several monetary instruments and offered longer tenors to absorb banks’ short-term liquidity and support the rupiah. It kept interest rates steady on Aug. 19 despite growth at six-year lows, citing the need for currency stability. The central bank said it had been “desperately defending” the rupiah, which has plumbed 17-year lows versus the dollar.

MALAYSIA – Reserves have fallen to near six-year lows after central bank interventions. The ringgit is at its lowest since before the government put a “floor” under it during the 1998 crisis. Prime Minister Najib Razak has pledged not to peg the ringgit or implement capital controls.

PERU – has tightened reserve requirements on currency derivatives after the sol hit its weakest level in nine years against the dollar. It regularly sells dollars

MEXICO – has raised daily dollar auction amounts, offering $200 million when the peso slumps more than 1 percent from the previous day’s fix and another $200 million without a minimum price trigger. Governor Agustin Carstens said on Aug 28 a rate hike was probable within days of a Fed move.

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