BRIC Currencies on the Slide

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Commodities, Global Trade

You can have too much of a good thing.

After spending most of last year introducing policies to weaken their currencies, emerging-market governments are now working to limit the slide amid capital outflows, a Bloomberg article explains.

Emerging markets, particularly Brazil, have complained since 2009 of too much currency strength, accusing the US, EU and indirectly China of driving their currencies down relative to the real, ruble and rupee, but this year there has been an abrupt turnaround with the BRIC currencies posting their biggest declines since 1998.

For the first time in 13 years, the real, ruble and rupee are weakening the most among developing-nation currencies, while the China’s yuan has depreciated more than in any other period since its 1994 devaluation, the article explains, after Brazil’s consumer default rate rose to the highest level since 2009; prices for Russian oil exports fell to an 18-month low; India’s budget deficit widened, and Chinese home prices slumped.

Currencies from Brazil, Russia and India will probably decline at least 15 percent by year-end, Stephen Jen, the former head of global currency research at Morgan Stanley, is quoted as saying. Brazil’s real has lost 12 percent so far this quarter, the biggest drop among the 31 most-actively traded currencies tracked by Bloomberg.

The 11.5 percent depreciation in the ruble and 10 percent drop in the rupee are almost twice the fall seen in the debt-stricken euro. China’s yuan, which was kept unchanged relative to the US dollar during the global financial crisis in 2008 and 2009, has fallen 1.2 percent since March. Just in the last week, the ruble sank a further 1.2 percent, the real 0.8 percent and the Rupee 2.9 percent.

It is no coincidence that money is said to be flowing out of BRIC economies at alarming rates.

Why not? To be continued in Part Two.

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