In Brazil they just conducted a swap operation to try and
support t the currency as the Brazilian real moved to 2.16
intra-day lows before the operation.
[caption id="attachment_57260" align="alignright" width="300"
caption="The Central Bank of Brazil"]
If they are in trying to support the currency now after spending
the last 18 months trying to weaken, this is a bit of cruel irony
for Finance Minister Mantega, President Rousseff, and the Brazil
Inflation which was not out of control is gaining momentum after
a 9% move in the currency in in two months.
Now while S&P rating agency and other credit agencies are
lowering their outlook for Brazil the government's game plan is
uncertain as the market ties their hands.
Rates must go higher and this will crimp the economy.
A quick look around core emerging markets and you can see
runaway currencies robbing central banks of their creativity at a
time when inflation is supposedly low but they can't risk spiraling
In India the INR has moved to all-time lows against the U.S.
dollar, and a basket at a time when lower inflation should be
giving Indian policy makers plenty of room to reform policy to more
market friendly plans.
What's going on? Emerging market currencies are caught in
between policy that has been overly accommodative, growth that has
ground to a halt, and capital flows that say, no thanks I don't
need to be here, especially if rates are going higher.