Emerging market policymakers move to allay currency concerns

Sat Jan 25, 2014 12:52pm EST
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By Ben Hirschler and Carolyn Cohn

DAVOS/LONDON (Reuters) - Top emerging market policymakers moved to allay concerns about their economies on Friday after investors sold off their currencies, raising fears of a broad market rout.

The U.S. Federal Reserve's plan to gradually withdraw its stimulus has long been expected to lead to a pullout from emerging markets. But the prospect of an economic slowdown in China added to concerns on Friday that emerging markets, particularly those with large current account deficits, may struggle to support their currencies this year.

Argentina said on Friday it would relax currency controls it had long defended as essential, in a policy reversal forced by high inflation and a tumble in the peso.

Turkey's lira hit a record low despite an estimated $3 billion of intervention by its central bank the previous day. The rouble and the rand also languished at levels not seen since the 2008-2009 financial crisis.

Turkey's deputy prime minister, Ali Babacan, played down the lira's slide, however, describing it as a "re-pricing process" due partly to the Fed and partly to recent political turmoil in the country.

He said that the central bank was taking the necessary steps to deal with the situation, adding that Turkey was protected against market swings by its sound finances.

"The balance sheet of the government, the banks and households are quite well protected against market volatility," he told a panel at the World Economic Forum in Davos.

Mexican Finance Minister Luis Videgaray told Reuters Television in an interview at Davos that the current volatility would not be a major disruption for his country.   Continued...

Turkish lira banknotes are seen in this photo illustration taken in Istanbul January 7, 2014. REUTERS/Murad Sezer