Intervention from rupee to real shows focus on inflation fight

May 31 (Bloomberg) -- Just three months ago, emerging nations from Indonesia to Brazil were intervening in foreign exchange markets to make exports more competitive. Now they are selling dollars to stem currency declines and quell inflation.

Bank Indonesia said on May 29 it will start offering dollar term deposits in two weeks to stabilize the rupiah, the second-worst performer in Asia this year, as a report this week may show consumer prices rose the most in nine months. Brazil auctioned currency swaps for four straight days last week to support the real after it fell to a three-year low. South Korea, India and Russia are also acting to curb exchange-rate losses.

“Inflation is still an issue for a number of emerging- market countries,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore. “At the same time, growth is an increasing concern for those countries vulnerable to the European debt crisis. Policy makers have to try and strike a very careful balance.”

Asia, whose 10 biggest economies hold half of the world’s $10 trillion reserves, has had the most success in curbing currency declines, with the Taiwan dollar rising 1.8 percent this month and the Philippine peso gaining 3 percent. The Polish zloty slid 11 percent against the dollar and the Hungarian forint 10.8 percent, the two biggest losers, as the countries sought to stem exchange-rate losses without depleting currency stockpiles as Europe’s worsening debt crisis spurs fund outflows from riskier assets.

Emerging-Market Selloff

Emerging-market stock funds had a net $1.5 billion in redemptions for the five-day period ended May 23, a third week of outflows, according to EPFR Global, a data provider in Cambridge, Massachusetts. Bond funds focused on developing countries recorded $478 million of withdrawals. JPMorgan Chase & Co’s Emerging Market Bond Index has dropped 2.6 percent this month, while the MSCI Emerging Markets Index of shares plunged 11 percent.

The average cost of insuring developing Asia’s sovereign debt for five years using credit-default swaps rose 50 basis points, or 0.50 percentage point, from 2012’s low in March to 178 on May 29, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. A similar measure for Latin America advanced 146 basis points to 399, and for emerging Europe rose 150 to 435.

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