Emerging Markets Forced to Tighten by US and Chinese Monetary Superpowers!
- Emerging markets forced to tighten by US and Chinese monetary superpowers!
by Ambrose Evans-Pritchard, http://www.telegraph.co.uk/
The global chain reaction resembles what happened in the East Asia crisis in 1997-1998 when domino effects swept the region
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Turkey, India, Brazil and a string of emerging market countries are being forced tighten monetary policy to halt capital flight despite crumbling growth, raising the risk of a vicious circle as debt problems mount.
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Turkey’s central bank on Tuesday night raised interest rates to 12pc from 7.75pc at an emergency meeting in a bid to defend its currency. The lira strengthened to 2.18 against the dollar after the decision, from 2.25.
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The move came as India raised rates a quarter-point to 8pc to choke off inflation and shore up confidence in the battered rupee, the third rate rise since Raghuram Rajan took off in September. South Africa’s central bank is meeting on Wednesday as the rand hovers near a record low at 11.06 to the dollar.
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The emerging market bloc makes up half the world economy, far higher than in any previous crisis. The International Monetary Fund warns that the sheer weight of these countries’ rate raises could lead to a “blowback” effect that ultimately hits the US, Europe and Japan as well. Jose Vinals, director of the IMF’s Monetary and Capital Markets Department, tried to reassure investors by saying that “this is not a panic situation”.
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“The epicentre of the global financial storm had shifted to emerging markets from Europe, and this third phase of the global financial crisis is intensifying. We are still in the very early stages,” said Stephen Jen from SLJ Marcro Partners.
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