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Emerging market currency troubles ease as policymakers offer support

Emerging market currency troubles ease as policymakers offer support
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Turmoil in emerging markets continued on Thursday, but the panic selling has eased.

Russia’s rouble, Turkey’s lira and the South African rand rebounded after policymakers pledged to take any necessary stabilisation measures.

The rouble came off a record low against the euro and its lowest level in nearly five years against the dollar after the Russian central bank said it would make unlimited interventions if the exchange rate strays outside of its target corridor.

The US Federal Reserve’s massive stimulus programme had bolstered those countries’ markets. Some of the huge amounts of dollars printed by the Fed chased higher interest rates and growth in emerging markets.

The start of the reversal of that policy has exposed the fundamental weaknesses of some emerging market economies.

Forex market analyst with Reuters, Neal Kimberley, said: ‘‘The market is looking at emerging markets en masse, and they don’t like what they see. And it’s the same old thing – money can spend 10 years going into emerging markets, it tries to get out in five minutes.’‘

Hungary’s currency, the forint, continues to drop in value.

To stop that the central bank could use its foreign exchange reserves – dollars and euros – to buy forints or it could put up interest rates, but it does not want to do that before elections in April and has even talked about cutting rates.

The euronews business correspondent in Budapest, Doloresz Katanich, said: “Analysts say if the forint falls further that could hurt Hungary’s economic growth in the short term. Hungary’s central bank has so far done nothing to defend the forint. The bank has though organised a conference for Friday, inviting central bankers from France, Austria, Russia and Turkey. The emerging markets currency crisis is not supposed to be the main topic, but it will inevitably be discussed.”