Emerging Market Central Bankers Are Getting Nervous About Their Plunging Currencies

Katia Porzecanski at Bloomberg

The biggest decline in emerging-market currencies since the global financial crisis is quickly turning from a welcome event for countries seeking to make their economies more competitive into something destructive.

The selloff has become so swift and so deep that officials are abandoning hands-off policies on concern the drop will fuel inflation, deter investment from foreigners and act as a drag on their economies at a time when global growth is already decelerating. To counter the declines, policy makers from Mexico to South Africa and Turkey have either stepped up intervention, increased interest rates or signaled an end to monetary easing.

Wall Street firms aren’t optimistic. Morgan Stanley says more policy makers will be forced to act, and Goldman Sachs Group Inc. warns there’s no end in sight to the weakness in developing-nation currencies.

Here’s the damage report: Twenty of the 24 most-widely-traded emerging-market currencies tracked by Bloomberg have weakened over the past month. An index of their exchange rates has dropped 8 percent this year to the lowest on record in data going back to 1993. The current pace of declines would make this the worst year since 2008.

Russia’s ruble, the Colombian and Chilean pesos and Brazil’s real have led the losses since mid-May, with each falling more than 10 percent. The Hong Kong dollar — which is pegged to the U.S. dollar — suffered the least, dropping just 0.02 percent.

Commodity Gluts

The declines extended to Friday, when the ruble tumbled 3 percent as of 3:28 p.m. in New York after an interest-rate cut. Russia already suspended dollar purchases to build reserves following a rout in the currency that almost wiped out its advance this year.

The Thai baht fell to a six-year low Friday, while South Africa’s rand reached the weakest level in more than

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