- Why Emerging Market FX Has Further To Fall!
by Tyler Durden, www.zerohedge.com
The current external environment and consequence of past policies are limiting options for EM nations (most specifically Indonesia and India). Citi believes the best they can do now is to smooth the (inevitable) macro adjustment (weaker FX, higher risk premiums, slower growth) through improved policy credibility (to curb volatility and overshooting) and find offsets to portfolio flows to ease the pressure. The 4 choices of various rocks and hard places do not hold much hope for anything but further FX devaluation. As Citi’s Matt King points out, what goes up (in terms of Emerging Market central bank FX reserves) risks coming back down with a thud… and in case you were wondering why India, Turkey, and Indonesia were the most-hammered… It’s all about the carry…