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Emerging-Market Currencies Hurt by Growth Woes After Rate Hikes

Rising bond yields fail to bring back flows into currencies
Russia, Turkey, Indonesia, Hungary to meet on rates this week

Brazil’s real has plunged 4.2% since Sept. 22 when its policy makers raised their benchmark rate. — Brazil’s real has plunged 4.2% since Sept. 22 when its policy makers raised their benchmark rate.
Photographer: Dado Galdieri/Bloomberg

By

Karl Lester M Yap and

Netty Idayu Ismail

October 17, 2021, 4:00 PM UTCUpdated onOctober 18, 2021, 5:54 AM UTC

Central banks’ longstanding strategy of hiking interest rates to defend currencies is failing to work its magic in emerging markets this time.

A gauge of developing-nation currencies has sunk to the weakest level since March 2020 relative to average local-bond yields. That suggests investors are discounting the appeal of rising interest rates, fretting instead over the toxic combination of slower global growth and faster inflation.