US Fed Tapering to Begin as Emerging Markets Feel The Sting

Brazil last week became the latest country to take emergency action to shore up its currency as anxious investors piled out of emerging markets. India, Indonesia, Turkey: there was more than a whiff of panic in the air as policymakers tried to reassure financial markets they remain a good bet.

The Brazilian real has lost 20% of its value against the dollar since the start of the year, the rupee is down 15% and the Turkish lira down 10%. The situation has alarming echoes of the catastrophic Asian financial crisis of 1997-98. Back then, Thailand became the first of the fast-growing “Asian tigers” forced to turn to the International Monetary Fund (IMF), as foreign investors lost heart and left and its currency plunged, sparking a chain reaction that spread across much of the continent.

This time the looming crisis has been caused by a change of heart by the Federal Reserve, thousands of miles away in Washington. In 1997, it was Alan Greenspan’s decision to push up US interest rates that sparked investors to pull their cash out of riskier markets to take advantage of better returns back home. This time, it’s the stated intention of Ben Bernanke, the chairman of the Fed’s board of governors, to start “tapering” its unprecedented $85bn a month programme of quantitative easing (QE), perhaps as soon as next month

via The Guardian

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