Central 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.
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| Emefiele, Nigeria's central bank gov |
Until recently, policymakers in the developing world, facing sluggish growth and shrinking exports, were relatively sanguine about currency weakness.
That is still the case - Kazakhstan and Vietnam recently devalued their currencies - but many now appear keen to prevent volatile swings or excessive declines that could exacerbate inflation and capital flight.
The following is a list of measures emerging central banks have taken to limit currency weakness:
INDONESIA - has changed auction mechanisms of several monetary instruments and offered longer tenures 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.
SOUTH KOREA - Finance Minister Choi Kyung-hwan said on Aug 20 that yuan devaluation had put pressure on South Korea and he was looking into possible responses should risks increase. The central bank has intervened on and off to steady the won, selling as much as $4 billion over two days last week.
MALAYSIA - Reserves have fallen to $94.5 billion to near a six-year low after repeated central bank interventions, data showed on Aug. 21. The currency is at its lowest since before the government put a "floor" under it during the 1998 crisis. But Prime Minister Najib Razak has pledged not to peg the ringgit or implement capital controls.
PERU - sold $219 million on Aug 20, its biggest intervention since April as the sol hit new six-year lows. The central bank still has plenty of reserves to support the sol, governor Julio Velarde said.
TURKEY - said on Aug 18 it may raise the amount sold at daily foreign exchange auctions by as much as $70 million above the pre-announced minimum, after previously pledging to add $30 million. Governor Erdem Basci has also signalled a return to more orthodox monetary policy, saying the bank was assessing the effect of using a single interest rate
MEXICO - Governor Agustin Carstens said on Aug 19 he would do everything possible to ensure the peso, at record lows versus the dollar, does not fuel faster inflation. The central bank has also raised daily dollar auctions to $200 million from $52 million.
GEORGIA - raised interest rates by 50 basis points on Aug. 12 to control inflation and support the lari, which has lost 20 percent so far this year against the dollar.
NIGERIA - has been selling dollars twice weekly to bureaux de change, helping to raise the naira to 210 per dollar on the parallel market from record lows. It has also directed banks to 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, saying shilling depreciation posed inflation risks. Rates have been hiked by 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 - said it would nearly double the number of currency swaps to roll over expiring contracts to support the real, currently at 12-year lows. The bank raised rates by 50 basis points on July 29 to 14.25 percent and plans to hold them there "for a sufficiently prolonged period".
RUSSIA - has stopped its dollar purchase programme and will not replenish its reserves for the rest of 2015 to reduce pressure on the rouble. On July 31, it cut interest rates by 50 bps. It was the fifth cut this year but smaller than its usual installment of 100 bps.
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