Lawmakers and central bankers in India, Indonesia, Turkey and several emerging-market economies are scrambling to contain the damage from falling currencies and to keep foreign investors from heading for the exits. Money has poured out of those economies over the last few weeks, pushing down the prices of a wide array of assets, including stocks, bonds and currencies. On Tuesday, the Indian rupee fell to a record low against the dollar, while the Indonesian rupiah dropped to its lowest level against the dollar since 2009.
In an effort to slow the exodus of foreign money from Turkey, the country’s central bank raised a key interest rate on Tuesday. That came as the Reserve Bank of India announced that it would start buying Indian government bonds later this week to “address the risks to macroeconomic stability. At this point in time I personally see the current government is completely in panic,” said Arvind Singhal, the chairman of Technopak Advisors, a consulting firm in Delhi. The strengthening of the American economy appears to be one of the catalysts for the problems in the emerging economies.
A booming United States stock market has been a magnet for investors who might have otherwise invested in overseas stocks.
More important, the American economic recovery is causing the Federal Reserve to reconsider the need for the stimulus measures that have fueled the boom in places like India and Turkey.
Many of these nations fueled their economic growth with an unprecedented flow of money from foreign investors. Those investors, in turn, were encouraged by the low-interest-rate policies of the Fed, which made it easy to borrow money and send it abroad. Last year, $1.2 trillion poured into emerging economies from around the world, nearly six times the amount going in just a decade ago, according to a report out Tuesday from HSBC.THE COLLAPSE IS COMING.... BETTER BRACE YOURSELVES...
As the Fed is taking the first steps toward letting rates rise in the United States, investors are pulling back their money. As they do, the local economies worsen, setting off a self-perpetuating cycle of market drops.