News Column

Emerging economies hike rates to defend currencies

January 29, 2014

LONDON (AP) It's proving contagious. First it was the central bank of India . Now, a day later on Wednesday, its counterparts in Turkey and South Africa have followed suit in raising interest rates. The motivation, in large part, is to support their currencies, which have suffered in the wake of the recent turmoil that has gripped emerging markets. However, analysts are skeptical that higher interest rates will be enough to stem the volatility. After all, it's a blunt instrument that has the potential to dent economic growth. Neil MacKinnon , a global macro strategist at VTB Capital , says the history of using interest rates to defend a currency "usually ends in tears."

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Source: Associated Press

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