According to Tokyo based Strategic Global Partners, the systematic decline in emerging market currencies now the US Federal Reserve announced its intention to scale back its massive monetary stimulus has prompted central banks in two countries, Turkey besides South Africa, to hike interest rates in a bid to stem capital outflows.
Turkey’s central bank raised rates from 7.75% to 12% in a move aimed at strengthening its currency the lira, which has been in a steady-going slide anti all other major currencies since 2012.
South Africa’s central bank’s hike was rather more modest with a 50 cause point increase from 5% to 5.5% in an effort to strengthen the rand.
“The era of emerging markets benefiting conspicuously from ultra-low interest rates in the advanced economies must be coming to an rapidness end. Fed tapering is being seeing by investors like a prelude to higher passion rates and an opportunity to get good returns on dollar-denominated assets without the risk of holding emerging market assets,” said a Strategic Global Partners tech analyst.
The lira strengthened after the announcement but by the time the US trading session began, it had given back much of any immediate gains it had made against the US dollar.
“Markets are keeping a nearness eye on the lira because it could give clues as to whether attractive yields or interest rates in emerging markets can tempt investors away from US equities and the relative safety of US bonds,” said the Strategic Global Partners analyst.
The firm says it is holding fire on emerging market investments until a clearer picture emerges over the melioration of Fed tapering.
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