23 Aug 2013
Emerging market Central banks witness critical decline in emergency reserves
FXstreet.com (New York) - Central banks in the developing world have lost an accumulated $81 billion of emergency reserves through both capital outflows and currency market interventions since early May – this being even before the recent upheaval across emerging markets.
The aforementioned figure, which excludes China, is roughly equal to 2.0% of all developing country central bank reserves, according to Morgan Stanley analysts, who compiled the data from central bank filings for the months of May, June and July.
However, some countries in particular have suffered more staunch declines than others, coupled with extreme currency devaluations as of late. Indonesia has lost -13.6% of its central bank reserves from the end of April until the end of July, Turkey spent -12.7% and Ukraine siphoned through almost -10%. India, another country that has seen its currency roiled in recent months, has shed almost -5.5% of its reserves over the same interval.
This places emerging markets in a very precarious position, as Central bank reserves are held to act as a safety buffer against volatility - on average still far larger than during past emerging market crises. Ultimately, the pace of these drops has spooked some investors and analysts alike, which creates a snowball effect of outflows.
Unfortunately, this trend does not look to reverse anytime soon, as many central banks are now likely to have suffered further reserve depletion in August, given the turbulence caused by the US Federal Reserve’s plans to end its monetary stimulus has resumed, and compounded concerns over slowing economic growth in emerging markets.
The aforementioned figure, which excludes China, is roughly equal to 2.0% of all developing country central bank reserves, according to Morgan Stanley analysts, who compiled the data from central bank filings for the months of May, June and July.
However, some countries in particular have suffered more staunch declines than others, coupled with extreme currency devaluations as of late. Indonesia has lost -13.6% of its central bank reserves from the end of April until the end of July, Turkey spent -12.7% and Ukraine siphoned through almost -10%. India, another country that has seen its currency roiled in recent months, has shed almost -5.5% of its reserves over the same interval.
This places emerging markets in a very precarious position, as Central bank reserves are held to act as a safety buffer against volatility - on average still far larger than during past emerging market crises. Ultimately, the pace of these drops has spooked some investors and analysts alike, which creates a snowball effect of outflows.
Unfortunately, this trend does not look to reverse anytime soon, as many central banks are now likely to have suffered further reserve depletion in August, given the turbulence caused by the US Federal Reserve’s plans to end its monetary stimulus has resumed, and compounded concerns over slowing economic growth in emerging markets.