Emerging central banks step in to curb currency falls

(Reuters) – Central bankers across emerging markets are taking action to stem falls in their currencies as rising concerns over the health of the global economy, a weaker yuan and a tumble in commodity prices ramp up the pressure.

While central banks have been relatively sanguine about currency weakness due to sluggish growth and shrinking exports, many are concerned about excessive falls that exacerbate capital flight and inflation.

The following is a list of the measures central banks are taking or debating to limit currency weakness:

CHINA – The yuan has been supported by state-owned banks’ dollar sales on behalf of the central bank since an Aug. 11 devaluation. Regulators have tightened restrictions on cross-border outflows from banks and are implementing a reserve requirement ratio on offshore banks’ domestic deposits, to reduce speculation in the yuan. Foreign exchange reserves posted their biggest ever annual drop in 2015.

MEXICO – Has regularly sold dollars to stabilize the peso , which has hit successive record lows, and will continue to auction $400 million through to Jan. 29. It raised rates by 25 basis points (bps) in December to 3.25 percent, its first rate hike for seven years.

BRAZIL – Has said it might dip into dollar reserves to support the real although so far it has used currency swaps, dollar repurchase agreements and local debt. The real shed 33 percent in 2015, making it the world’s worst-performing major currency. But it held rates at a nine-year high of 14.25 percent at its Jan. 20 meeting after previously signaling a rate rise.

NIGERIA – Has adjusted the naira rate since pegging it to the dollar and abolishing two-way naira quotes to conserve forex reserves. Halted dollar sales to non-bank forex operators on Jan. 11 in another attempt to shore up reserves, which declined by 15.6 percent year-on-year in 2015 to $29.13 billion. The naira has hit record lows on the black market in January, raising devaluation pressure. Kept rates at 11 percent and held cash reserve ratio for banks at 20 percent on Jan. 26.

ANGOLA – Raised benchmark rate by 50 bps to 11 percent on Dec. 22. Devalued kwanza by about 15 percent against the dollar on Jan. 4.

PERU – Raised interest rates to 4 percent in January, its second hike in a row.. It has also sold dollars and tightened currency derivative operations in an attempt to support the sol.

RUSSIA – Held interest rates at 11 percent on Dec. 11 as inflation slowed. Expectations of a January rate cut evaporated after the rouble slid to new record lows.

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AZERBAIJAN – Has imposed limits on foreign currency outflows , removed insurance limits on deposits held in local banks and abolished a 10 percent tax on interest paid on retail deposits. Banned sale of foreign exchange in standalone bureaux de change. The manat has lost more than a third of its value against the dollar in the past month and the central bank has burned through over half its foreign currency reserves trying to prop it up.

KAZAKHSTAN – The tenge hit record lows against the dollar in January, putting overall losses at more than 50 percent since the authorities ditched pegged exchange rates last August. To make local currency retail deposits attractive, from Feb. 1 Kazakhstan’s deposit insurance fund will raise the interest rate ceiling on deposits to 14 percent, while cutting the foreign currency deposit ceiling to 2 percent. The country’s net gold and forex reserves fell to $27.18 billion in December from $27.57 billion in November.

SOUTH KOREA – Authorities were suspected of intervening to support the won in early January following a North Korean nuclear test and Chinese market volatility. Forex reserves are near four-year lows but authorities say they were sufficient to withstand external shocks. The bank held rates on Jan. 14.

MALAYSIA – Has repeatedly intervened to support the ringgit , which plumbed 17-year lows in 2015. Held interest rates at 3.25 percent in January but cut statutory reserve requirements, effective from Feb. 1.

SRI LANKA – Held rates in January. Rupee hit a record low earlier in the month and has fallen 6.4 percent since it was floated on Sept. 4. An unidentified investor has promised to park $1 billion in dollar deposits in Sri Lanka to help it defend its currency.

GHANA – Kept rates at 26 percent in January, the highest for 12 years, to tackle inflation. The cedi is down nearly 4 percent since Jan. 2 after weakening about 16 percent last year. (LONDON, Jan 26/2016)

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