Central bankers’ dilemma and actions in 2015 (emerging economies)

Two major issues have gripped central bankers all over the world in 2015. Kindly note all mentioned actions are of 2015 only.

• Competitive devaluation - Devaluation of currencies through policy actions are reducing competitiveness of exporters across world. Pursuant of such policies Euro zone, Japan, Sweden, Australia, Denmark to name a few. Major exporting economies are facing the brunt and decided to follow suit as inflation slowed due to fall in energy prices.

• Stronger dollar over local currencies - Speculation of interest rate hike and lack of petro dollar has boost the value of dollar against many counterparts prompting central banks across world to resort to rate hike in 2015. UK is also expected to raise rates.

Hawkish -

• Ukraine hiked interest rate by 1600 basis points to stop its currency's fall against dollar.
• Brazil hiked rate by 100 basis points to curb inflation and falling real.
• Mexico announced dollar sale in tune of $52 million a day to stop the currency's slide.

Dovish -

• The size of this group is quite high and fuels concern over currency war.
• India reduced rates by 50 basis points.
• China reduced rates by 25 basis points
• Egypt reduced rates by 50 basis points.
• Indonesia reduced rates by 25 basis points.
• Israel reduced rates by 15 basis points.
• South Korea and Thailand reduces rates both by 25 basis points this week.
• Turkey reduced rates by 75 basis points.

Expectations -

• FED rate hike and ECB action would further complicate the currency war situation and more actions to be followed suit.
• Situation might get uglier if International monetary cooperation remains dysfunctional.
• Dollar might strengthen against the dovish currencies and moreover against the hawkish pack as hiking rates without reform would fail to support the currencies.