Information posted in this forum are entirely of the respective members' personal views. The views posted on this open online forum of contributors do not constitute a recommendation buy or sell. The site nor the connected parties will be responsible for the posts posted on the forum and will take best possible action to remove any unlawful or inappropriate posts.
All rights to articles of value authored by members posted on the forum belong to the respective authors. Re-using without the consent of the authors is prohibited. Due credit with links to original source should be given when quoting content from the forum.
This is an educational portal and not one that gives recommendations. Please obtain investment advises from a Registered Investment Advisor through a stock broker
ECONOMYNEXT – Sri Lanka’s interest rates should go down, but the rupee will not fall, because the strength of the currency is based on confidence, not just rates, Mark Mobius, an emerging market investor said in a prediction.
“You have to reduce the interest rates,” Mobius, known as a emerging market guru, said at a forum in Colombo organized by Cinnamon Life, an 800 million US dollar real estate development promoted by Sri Lanka’s John Keells Holdings.
“You have to look at the global situation. Interest rates are moving down and are low.”
He said some people said that if rates are lowered the currency will fall.
“No, the currency is based on confidence not only on interest rates,” he said. “Look at the US.”
The US however no longer has pegged exchange and is a free floating currency and the Fed does not inject base money (or withdraw) on interventions in the foreign exchange market.
The US dollar also collapsed in 1971 when the Fed injected money while trying to maintain a gold peg at 35 dollars an ounce.
Mobius’ comments came a day after Paul Volcker, the Fed Chairman who ended the stagflation created by the Fed after the gold peg collapsed, died. Volker raised policy rates to 20 percent to end 14 percent inflation, sending oil and gold prices crashing down.
You may also read:
Sri Lanka can resume high growth path, cut more taxes: Mark Mobius
Sri Lanka invites more investments, tourists from China
John Keells Holdings drags down Sri Lanka stocks
Sri Lanka tourist arrivals to recover by end of winter season: CB Deputy Governor
Sri Lanka bad loans expected to fall after tax cuts: HNB
Paul Volcker, the man who tamed the Fed, dies at 92
Currency crises are faced by soft-pegs, which collect foreign reserves by intervening in forex markets, not free floating regimes.
Currency boards or hard pegs (where short term rates float) also do not face currency crises and ‘foreign exchange shortages’.
No Forex Reserves
However in an about turn, Mobius himself admitted that he looked at forex reserves when investing in emerging markets.
Central banks of countries like the US did not have foreign reserves and most gold and forex reserves were owned by emerging market countries, he said.
He said at one time he could not exit from Nigeria. Nigeria is an oil producing country with a bad central bank.
Mobius said he was told that there were no foreign exchange reserves and he was told to wait and he had to wait.
The Nigerian currency the Naira was set up with a central bank in 1972, replacing the pound at 0.6 to the US and it has fallen to about 360 so far.
The soft-peg with the US dollar operated by Sri Lanka’s central bank has the worst record among South Asian monetary authorities, falling from 4.70 to 182 since it was created in 1952.
The central bank’s soft-peg has dragged the country and the Treasury to the IMF 16 times so far.
Pakistan is next the next worst central bank with the rupee falling to 155 from 4.70 to the US dollar. Bangladesh is next, but has kept monetary stability for almost a decade with the Taka at around 80 to the US dollar, giving a stable foundation for a period of strong growth.
Economynext daily and weekly email newsletters covering the best of politics and policy.
The best performer is the Maldives Monetary Authority, whose dollar peg has fallen to only 15.
Dubai which also had Indian rupees now has a currency which is 3 to the US dollar, and has no independent monetary policy, with a currency-board like system. (Colombo/Dec10/2019 – Update III)
- Posts : 1728
Join date : 2016-11-28
Age : 40