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South Korea and Indonesia move on currencies | South Korea and Indonesia move on currencies |
(about 2 hours later) | |
The Bank of Korea has become the latest central bank to step into the money markets in a bid to stabilise its currency. | The Bank of Korea has become the latest central bank to step into the money markets in a bid to stabilise its currency. |
The Korean won has declined by 10% against the US dollar in the past month, and the bank said it was taking appropriate steps to stem the falls. | The Korean won has declined by 10% against the US dollar in the past month, and the bank said it was taking appropriate steps to stem the falls. |
The move follows a similar action by the Indonesian central bank on Thursday to shore up the rupiah. | The move follows a similar action by the Indonesian central bank on Thursday to shore up the rupiah. |
Analysts said big currency fluctuations were a threat to these economies. | Analysts said big currency fluctuations were a threat to these economies. |
"It's not a desire to produce a stronger currency, it's just about putting a cap on the decline," Sean Callow of Westpac Bank told the BBC. | "It's not a desire to produce a stronger currency, it's just about putting a cap on the decline," Sean Callow of Westpac Bank told the BBC. |
"These countries remember what problems were there, when they had a weak currency," he added. | "These countries remember what problems were there, when they had a weak currency," he added. |
Economic impact | Economic impact |
The sharp falls in currencies have come at a time when the Asian economies have been trying to control rising consumer prices. | |
High rates of inflation have become a hot political topic in many of the region's economies, and a threat to their growth. | High rates of inflation have become a hot political topic in many of the region's economies, and a threat to their growth. |
Analysts said a dip in the currency values has added to those problems. | Analysts said a dip in the currency values has added to those problems. |
"The lower your currency goes, the higher the cost of imports becomes, and that adds to price growth," Arjuna Mahendran of HSBC Private Bank told the BBC. | "The lower your currency goes, the higher the cost of imports becomes, and that adds to price growth," Arjuna Mahendran of HSBC Private Bank told the BBC. |
To make matters worse, a weak currency also hurts purchasing power and dents consumer demand. | To make matters worse, a weak currency also hurts purchasing power and dents consumer demand. |
Mr Mahendran said the combination of these factors was making the central banks wary. | Mr Mahendran said the combination of these factors was making the central banks wary. |
De-risking? | De-risking? |
South Korea's central bank said that it was forced to act due to huge fluctuations in the currency market. | South Korea's central bank said that it was forced to act due to huge fluctuations in the currency market. |
"Recent forex market movements in one direction were excessive," the government and the central bank said in a joint statement. | "Recent forex market movements in one direction were excessive," the government and the central bank said in a joint statement. |
Analysts said the currencies were being hit by a negative sentiment amongst investors. | Analysts said the currencies were being hit by a negative sentiment amongst investors. |
"Its a negative emerging market move and a rapid decline in risk appetite," said Westpac Bank's Mr Callow. | "Its a negative emerging market move and a rapid decline in risk appetite," said Westpac Bank's Mr Callow. |
"Investors are being forced to take a step back due to fear," he added. | "Investors are being forced to take a step back due to fear," he added. |
There are concerns that the ongoing debt crisis in Europe coupled with the economic problems in the US may hurt global growth. | There are concerns that the ongoing debt crisis in Europe coupled with the economic problems in the US may hurt global growth. |
The International Monetary Fund and the World Bank have both warned that the global economy is in a dangerous zone. | |
Analysts said that investors were worried that a slowdown in key markets would hurt growth in the emerging economies and hence they were playing it safe by pulling out. | |
"It is forced selling, the sort you get in the middle of a global crisis. It's the scare of a domino effect that is driving it," said Mr Callow. |