Central banks fight against devaluation

SOUTH Africa’s interest rate hike yesterday made it the third emerging market to tighten policy in as many days, though the interventions of central banks are failing to reverse currency weaknesses so far.

The South Africa Reserve Bank unexpectedly raised their benchmark rate to 5.5 per cent yesterday. After a brief upswing, the change failed to strengthen the rand after the week’s losses, with a rise of only 0.07 against the dollar from the previous day.

The Turkish central bank’s tightening Tuesday night also failed to stop the devaluation of the country’s currency. Turkey’s benchmark interest rate was dragged up 4.25 percentage points to 12 per cent, a larger rise than analysts expected. Despite a strong start, the lira dropped from over $0.46 to barely $0.44 yesterday.

Neil Shearing of Capital Economics said that there were some emerging markets that likely wouldn’t react to a stronger dollar: “Korea, Poland, Mexico and the Philippines are likely to welcome the boost to export competitiveness that follows from weaker currencies.”

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