The Telegraph
Russia's central bank has pledged "unlimited" intervention to
maintain the strength of the rouble as emerging markets continued to come
under pressure from the Federal Reserve's withdrawal of stimulus.
Capital flight from emerging markets continued on Thursday after the US
Federal Reserve confirmed fears it would trim another $10bn off its massive
asset purchase programme.
A closely-watched survey showing that Chinese manufacturing contracted for the
first time in six months in January also exacerbated jitters in the market.
In a statement, the Russian central bank said it would stage "unlimited"
interventions in order to keep the rouble's exchange rate within its target
corridor, as the currency fell to a record low against the euro and a
five-year low against the US dollar.
The bank runs a "dirty" float in which it conducts currency
interventions when the rouble approaches the boundaries of a seven-rouble
corridor against a currency basket made up of dollars and euros. It wants to
move to a free float by the start of next year, but the rouble's 6 percent
slide this year has already led Economy Minister Alexei Ulyukayev - a former
central banker - to call for a delay.
Ben Bernanke, outgoing Federal Reserve chairman, on Wednesday said the US
central bank would continue
tapering its massive quantitative easing programme by reducing asset
purchases to $65bn in February from January's $75bn. This is the second
$10bn reduction in as many months
The Fed's move, although widely expected, has intensified pressure on emerging market currencies and stocks, which have been on a downward trajectory ever since Mr Bernanke first raised the prospect of a taper in May last year
The ongoing sell-off underlines the supremacy of the Fed as traders apparently dismissed efforts by emerging market central banks to stem capital flight by raising interest rates. A bumper interest rate hike in Turkey to 12pc from 7.75pc, a less-aggressive rise in South Africa and unexpected tightening in India this week have failed to ease outflows
"The pressure on these currencies has been relentless and it seems like places like South Africa, Hungary and Turkey are trying to force policymakers to bring real rates to much higher levels," said Manik Narain, emerging market strategist at UBS
"Rate hikes have been effectively rejected by the currency markets... Institutional investors have remained faithful (but) it may be that some of these positions are starting to crack.
Many economists argue that emerging markets must endure a sharp correction to adjust for increased demand in the developed economies and that lower currencies will stoke economic growth in the long term by boosting exports.
MSCI's index of emerging market stocks fell 0.8pc on Thursday to a fresh four-and-a-half month low. The Turkish lira recovered slightly on Thursday but remained near record lows against the US dollar and the South African rand hit a fresh five-year low of 11.39 against the greenback.
The Fed's move, although widely expected, has intensified pressure on emerging market currencies and stocks, which have been on a downward trajectory ever since Mr Bernanke first raised the prospect of a taper in May last year
The ongoing sell-off underlines the supremacy of the Fed as traders apparently dismissed efforts by emerging market central banks to stem capital flight by raising interest rates. A bumper interest rate hike in Turkey to 12pc from 7.75pc, a less-aggressive rise in South Africa and unexpected tightening in India this week have failed to ease outflows
"The pressure on these currencies has been relentless and it seems like places like South Africa, Hungary and Turkey are trying to force policymakers to bring real rates to much higher levels," said Manik Narain, emerging market strategist at UBS
"Rate hikes have been effectively rejected by the currency markets... Institutional investors have remained faithful (but) it may be that some of these positions are starting to crack.
Many economists argue that emerging markets must endure a sharp correction to adjust for increased demand in the developed economies and that lower currencies will stoke economic growth in the long term by boosting exports.
MSCI's index of emerging market stocks fell 0.8pc on Thursday to a fresh four-and-a-half month low. The Turkish lira recovered slightly on Thursday but remained near record lows against the US dollar and the South African rand hit a fresh five-year low of 11.39 against the greenback.
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