The currencies of the emerging economies are being battered – from Argentina’s peso to Turkey’s lira.
This year however the emerging economies have been sent into a turmoil and a number of global issues including increasing US Fed rates, political unrest and global trade war have pressurized their currencies.
The five of the leading emerging economies of the world have been affected.
US rate hikes, political confrontation and confusion over the country’s economic policy has trashed Turkey’s currency which has tumbled over 40 per cent against the dollar this year so far. The low rates of interest in foreign countries funded the debt for most Turkish companies in recent years. The rising of rates in such countries now have raised doubts about the ability of the Turkish companies to serve the debts. The country’ president Recip Tayyip Erdogan has severely resisted raising of rates in Turkey which has confused investors. Inflation is also on the rise in the country.
Since the beginning of the year, there was a 40 per cent fall in Argentina’s peso against the US dollar. The government sought a $50 billion rescue package from the International Monetary Fund and late last month asked the Fund to expediate release of the payment for it to meet its international commitments. The rates of interest in the country is amongst the highest in the world which has been increased to 60 per cent to fight rising inflation and reduce outflow of the peso. However, despite these measures there has been no stopping of the fall of the currency. According to Moody’s, about 70 per cent of the debt of the Argentine government comprises of foreign currencies and the falling peso would make it more difficult for the country ot serve its foreign debt.
A record low of the Indian rupee against the US dollar was recorded Friday last week which is believed to be a fall out of the ruble in emerging currencies. Since the beginning of the year the rupee has fallen by 10 per cent.
However, there are no signs of a slowdown of the Indian economy and it was the fastest growing major economy in the world for the June-August quarter.
But there are a number of headwinds that the country is slated to face in the recent future which includes the rising global crude costs because the country heavily relies on import of oil to fulfill its energy needs. This has also pushed up inflation in the country.
The rising US Federal rates and global trade war could also impact the economy.
Brazil’s currency the real, has been impacted by local politics. So far this year, there has been a 20 per cent drop in the currency against the US dollar. There is also concern among investors about the results of the presidential election to be held in October. Investors are hoping that a pro-business leader would be elected who would implement financial reforms like reduction of the budget deficit of the country.
However, recent polls have indicated the opposite.
“Lack of clarity that an investor-friendly candidate will win should weigh on local assets,” Gustavo Rangel, chief Latin America economist at investment bank ING, wrote in a recent note.
However, Brazil is in a comfortable position with its foreign exchange reserves which can be used by the central bank to combat currency weakness, he noted.
So far this year, there has been a 15 per cent drop against the US dollar in the Russian ruble even as economic sanctions had been imposed on the country. the economy has been pressurized by Western economic sanctions against its for its role in the Ukraine conflict.
More sanctions were imposed against the country following the attempted murder of a former Russian double agent in the UK where the UK alleged a direct role of the country in the incident. Russia has also been hit by the import tariffs on steel and aluminum imposed by the US. There is concern among investors that there would be more sanctions against Russia which would include steps that would be targeted against the companies in the banking and the energy sector. but according to some analysts, the impact of those sanctions can be partially offset by the rising crude prices.
(Adapted from Money.CNN.com)