South Africa, Ukraine are in currency `crisis,' Merrill says

17:37, 22 October 2008
Ukraine
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They have lost more than 29 and 24 percent against the dollar

South Africa`s rand and the Ukrainian hryvnia have joined Iceland`s krona in a ``currency crisis,`` while the Turkish lira and Hungarian forint may follow in ``a matter of days,`` according to Merrill Lynch & Co., according to Bloomberg.

``We`re in the midst of a severe deterioration in risk appetite,`` Benoit Anne, an emerging-market strategist at Merrill Lynch in London, said today in a telephone interview. ``Investors are cutting all exposure to emerging markets.``

Iceland`s krona has slumped 93 percent against the dollar since July 1 while the rand and hryvnia have lost more than 29 and 24 percent, respectively, according to data compiled by Bloomberg and Merrill. A currency crisis is defined as a drop of more than 25 percent since the beginning of the third quarter coupled with a pace of depreciation that would exceed the move in the 12 months to July 2008 by at least 10 percent, Merrill said in a note to clients today.

The Hungarian forint and Turkish lira are ``on the brink of crisis`` and are the ``next official candidates`` in Europe, the Middle East and Africa, Merrill said. The forint has fallen more than 30 percent since the beginning of the third quarter, forcing Hungary`s central bank to lift its main interest rate by 3 percentage points today. Turkey`s lira has lost almost 26 percent over the same period.

Israel`s shekel, Russia`s ruble and the Egyptian pound ``display a very moderate risk of currency crisis,`` Merrill said in the report. ``The shekel is the safest asset in Europe, the Middle East and Africa.``

The shekel and the ruble have fallen 13 percent against the dollar since July 1. The Egyptian pound has lost 4.6 percent.

Bloomberg

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