| LONDON, July 14
LONDON, July 14 Hard currency reserves across
emerging markets excluding China have surged by around $100
billion from levels at the end of 2013 as central banks exploit
this year's buoyant investment inflows to refill their depleted
With an eye on the day when U.S. interest rates eventually
start to rise, policymakers in emerging economies are actively
buying dollars. They see them as a bulwark against the kind of
selloff that ravaged their markets last year due to signs that
the U.S. bond-buying programme could soon be wound down.
They have been helped by renewed interest from investors who
have pumped more than $150 billion this year into emerging
stocks and bonds, data from the Institute of International
As a result, reserves in India, Indonesia and Mexico have
risen by about 8 percent this year, leading gains in big
emerging economies, the following graphic shows:
For TABLE on central bank reserves
"We are seeing rebuilding of emerging market reserves thanks
to the strong inflow and that's allowing them to recover after
the losses of last year," said David Hauner, head of Emerging
EMEA fixed income and economics at Bank of America Merrill
Indian reserves for instance are at $315 billion, over $40
billion above a trough hit last year as the Reserve Bank of
India has intervened to rebuild buffers and also stem gains in
the rupee's exchange rate.
South Korean authorities also have intervened to dampen the
won which is near six-year highs
"As much as central banks didn't like currency depreciation,
they don't like much appreciation either," Hauner added.
India was one of the "Fragile Five" countries that suffered
huge selloffs last year because of their reliance on external
capital and a perception that their hard currency reserves were
One RBI official said the bank had "learned its lesson".
"In the current situation where there are so many
uncertainties like elections, global spillover, Fed fund rate
hike, no amount of reserves is high," he said.
Overall reserves in emerging economies, not taking into
account China, rose $100 billion in the January-July period to
$4.08 trillion, according the following graphic based on data
from consultancy CrossBorder Capital:
Chinese reserves alone are near the $4 trillion mark.
Not everyone is building reserves. Russia's stash dwindled
6.6 percent from the end of 2013 to $475.8 billion while another
Fragile Five state, South Africa, posted a 9.5 percent fall.
Nigerian and Ukrainian reserves are down 13-14 percent.
Rising reserves are helping to allay fears of balance of
payments crises in emerging markets though there are some
exceptions, according to the following graphic, based on data
from BofA/ML: link.reuters.com/san42w
One yardstick is the number of months of a country's imports
that its reserves will buy, with three months deemed to be the
safe minimum. The second, based on the so-called
Guidotti-Greenspan rule, requires reserves to be at least equal
to external debt payments due in the coming year.
The rationale is that countries should have enough reserves
to resist a sudden stop in foreign financing.
By the first measure, Egypt and Ukraine - each with two
months' of import cover - look vulnerable. Argentine, Turkish
and Ukrainian reserves look inadequate to repay short-term debt.
(editing by David Stamp)