Intervention from rupee to real shows focus on inflation fight

‘Risk-Off Sentiment’

“Risk-off sentiment has been lingering for quite some time,” said Takahide Irimura, the head of emerging-market research at Kokusai Asset Management Co. in Tokyo, which oversees $46 billion. “It’s understandable that central banks around the world come up with different types of measures to supplement their intervention to stem declines in their currencies.”

Russia’s central bank sold dollars to slow the ruble’s depreciation for the first time since January on May 25, according to a statement on its website. The bank is selling as much as $150 million a day after the ruble depreciated beyond 35.65 against its dollar-euro basket, according to Vladimir Kolychev, chief economist at Societe Generale SA’s OAO Rosbank unit in Moscow.

Poland’s government plans to sell the equivalent of 11 billion euros ($13.7 billion) of foreign currencies in the market this year to support the zloty, about the same amount as in 2011, Deputy Finance Minister Dominik Radziwill said May 23. Hungary’s central bank held the European Union’s highest benchmark rate at 7 percent on May 29, saying a “cautious policy stance” was needed because of the outlook for inflation.

Turkey’s Reserves

Turkey’s central bank said on May 29 it will raise the portion of required reserves lenders can keep in foreign currency to as much as 45 percent from 40 percent. The measure will take effect on June 22 and would free up to 2.8 billion liras ($1.5 billion) of cash, according to a statement on its website.

“There is a limitation on how far we can use the reserve to defend our currency,” Bank of Thailand Governor Prasarn Trairatvorakul told reporters in Bangkok yesterday. “This method has a dangerous aspect. If we use it to a certain point, we may be cornered when our reserves run out and that will be very bad.”

Bank Indonesia will use its “ammunition” carefully, Deputy Governor Hartadi Sarwono said on May 16 in Jakarta. A weekly offering of dollar deposits will “complement” reserves, according to the monetary authority. The rupiah fell 3.9 percent this year and dropped to 9,616 per dollar on May 29, the weakest level since November 2009.

Rupee Derivatives

The Reserve Bank of India curbed trading in rupee derivatives this month to rein in volatility, and cut the amount of export income that can be held in foreign currency to 50 percent from 100 percent. The rupee lost 5.4 percent in 2012 in the worst loss among Asia’s 10 most-used exchange rates, and touched a record low of 56.3875 per dollar on May 24.

“Central banks are intervening in order to prevent any perception of disorderly currency devaluation and to maintain greater stability in domestic markets,” said Sacha Tihanyi, a senior Hong Kong-based strategist at Scotiabank, a unit of Bank of Nova Scotia. “This helps prevent a vicious circle of foreign investors selling domestic securities and exiting the currency, potentially drawing in more selling.”

Brazil’s real fell to a three-year low on May 18, prompting the central bank to auction currency swaps in the first operation of its kind since October to limit declines. The central bank has lowered the benchmark Selic rate 350 basis points since August to 9 percent to buttress economic growth.

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