Emerging Markets Briefer

Central banks react to currency weakness

Thu, Apr 3 2008, 08:27 GMT
by Danske Research EmergingMarkets Team

Danske Bank A/S


FX markets have been focused on central banks

• Over the last month a number of Emerging Markets currencies have continued to be under pressure. This has especially been the case for several of the EMEA currencies – where a combination of the impact from the global credit crunch and large external imbalances has weighed negatively on for example the Turkish lira and the South African rand.

• Taking a glance at chart 1 on page three one might note that the three bestperforming currencies in our EM universe during March are HUF, RON and PLN. This is likely to be connected with the local central banks’ actions.

Look for higher rates and yields in most of EM

• Going forward, we expect more rate hikes from a number of the CEE central banks. In EMEA, the central banks in Turkey and South Africa might be forced to deliver hikes in the coming months to protect the local currencies. In Latin America, the Brazilian central bank will deliver several hikes during the summer to cool off the briskly growing economy.

• We still recommend shying away from currencies with large funding needs, like TRY, ZAR, RON and HUF. Furthermore, we fear that BRL looks more vulnerable given the strong level it is trading at.

Published on  Thu, Apr 3 2008, 08:30 GMT

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