I's hard not to laugh at the irony of recent central bank currency actions.
After complaining for years about the strength of the Real, the Brazilian central bank stepped up intervention actions hoping to stop a plunge in the currency.
Turkey now attempts to attract capital after taking measures for the past four years to stop the flow of money into the country.
In India, the central bank seeks to stop a plunge in the Rupee which is at a record low of record low 58.95 to the dollar.
Abhay Laijawala, managing director and head of research, Deutsche Bank India in an interview to ET's R Sriram and Biswajit Baruah said despite India's relative attractiveness and its differentiated status in emerging markets it may not be able to insulate itself from any generic emerging market selloff. This would also be the "acid test" whether the shift in flows of household savings from physical to financial assets is structural, or not. Edited excerpts: What is your expectation from the US Federal Reserve meeting on Thursday? Will its outcome help reduce global market volatility?
Emerging markets-related disruption continued overnight, as the Nikkei fell nearly 2%, pounded by the rise in the yen due to its status as a flight currency. Other Asian markets took a hit as well, with only Australia emerging relatively unscathed:
Argentina Institutes 50% Tax on Internet Purchases; Emerging Market Contagion Spreads; Argentina, Venezuela, Turkey Roundup Yesterday, Argentina devalued the Peso hoping to halt further declines in its currency reserves. Markets had seen this coming as charts of the Peso vs. the US dollar show.Peso vs. US Dollar One Week
NEW YORK: Emerging-market currencies posted a third monthly advance as oil rallied to more than $48 a barrel, propelling gains in exchange rates from Russia to Colombia. The MSCI Emerging Markets Currency Index rose 0.9% in April. The rouble extended the best start to a year on record as Russia's central bank left borrowing costs on hold, while bonds gained as policy makers signaled they may restart interest-rate cuts at an upcoming meeting. Colombia's peso rose 0.9% on Friday, pushing its gain in April to 5.3%, the most in developing nations.
NEW DELHI: The S&P BSE Sensex managed to climb over 300 points in two sessions and was trading well above its crucial psychological level of 26,000 on Wednesday. But, will the momentum sustain? That's the question that has been haunting market participants since the RBI announcement. The bulls have finally managed to regain some ground, after RBI governor Raghuram Rajan slashed policy rates by 50 bps in a surprise move on Tuesday.
For the last six years, global monetary trends tended to affect emerging markets as a unit. First, near-zero interest rates in the developed world pushed yield-seeking capital into emerging stocks and bonds, then the “taper tantrum” sucked it back out. Today, however, their economic paths are diverging.
Emerging-market investors might be a bit worried about the U.S. Federal Reserve’s next few moves, especially if it leads to higher interest rates south of the border.
Just the hint that the world’s most powerful central bank was going to start tapering its bond-buying program caused a major selloff last year in the developing world.
But a less accommodative Fed may not be the risk it’s being made out to be and may even be a good thing, said John Higgins, an economist at Capital Economics.