Steep falls in emerging market currencies have jolted central bankers across the developing world into action to try and stem the weakness. A J.P. Morgan index tracking 22 emerging market currencies traded at a record low 71.3 on Friday, and with the US Federal Reserve effectively confirming it is on track for a rate rise this year, more weakness likely lies ahead.
Policymakers in the developing world, faced with sluggish growth and shrinking exports, have been relatively sanguine about currency weakness. But many now appear keen to prevent volatile swings or excessive declines that could exacerbate inflation. "Central bankers in emerging markets are finally waking up to the fact their currencies may test extreme levels over the next months, and they are starting to react to it," Citi strategist Luis Costa said, citing policy changes this week in Brazil, Russia and Turkey.
"It is a synchronised protective move among EM central banks, and there will likely be a lot more." The following is a list of measures emerging central banks have undertaken in July to limit currency weakness:
RUSSIA: The central bank stopped its dollar purchase programme and will not replenish its reserves for the rest of 2015 to defuse pressure on the rouble. On July 31, it cut interest rates by 50 basis points (bps), its fifth cut this year but smaller than its usual installment of 100 bps. The rouble fell more than 10 percent in July.
BRAZIL: The central bank raised interest rates by 50 basis points on July 29, pushing them to nine-year highs of 14.25 percent. Despite the worst recession in 25 years, it said rates would be held at that level "for a sufficiently prolonged period". The real hit 12-year lows earlier in July, losing more than 8 percent over the month.
TURKEY: The central bank may adopt additional forex liquidity measures if currency moves continue to delay the fall in inflation, though it did not say what the measures were. Governor Erdem Basci also signalled a return to more orthodox monetary policy, saying the bank was conducting a technical assessment of the impact of using a single interest rate. Lira losses have been relatively muted in July as it benefits from falling oil prices.
MEXICO: Central bank governor Agustin Carstens said on Friday interest rates could be raised anytime to defend the peso, which has fallen to record lows. The central bank also bolstered interventions, raising daily dollar auctions to $200 million from $52 million while lowering the threshold of peso losses that can trigger further sales.
PERU - The central bank has been selling dollars to stabilise the sol, which is at six-year lows.
SOUTH AFRICA: The Reserve Bank raised interest rates by 25 basis points to 6 percent on July 23, a move viewed as a borderline call. The rand touched 14-year lows against the dollar this month.
MALAYSIA: The central bank has not allowed the ringgit to move since early July after it tumbled to 17-year lows against the dollar. Currency reserves declined by $5 billion in the two weeks to July 5 and analysts estimate a lot more has been spent since then.
INDONESIA: A central bank official said on July 30 the bank would not let the rupiah depreciate "on and on" after the currency plumbed successive 17-year lows against the dollar . The bank held interest rates steady on July 14 at 7.5 percent with rupiah weakness seen as a constraint to policy loosening.
KENYA: The central bank said on July 16 that it was taking measures to eliminate "disorderly market developments" in the currency market after the shilling weakened to new 3 1/2-year lows.
UGANDA: The central bank raised rates by 150 basis points to 14.5 percent on July 13, saying it wanted to prevent a jump in inflation after the shilling weakened against the dollar . Rates have been hiked three times since April. The shilling has fallen around 17 percent this year.
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