EM currencies in disarray: Why central banks may look away

The rupee started the session on a strong note today. That after the RBI on Tuesday announced fresh measures to prop up the rupee. However, the cheer was short-lived. The Indian currency nosedived during the middle of the session, only to touch a new all time low against the dollar. CNBC-TV18's Latha Venkatesh gives a detailed analysis of the mayhem on Mint Street.

The Indonesian rupiah is down about 1.8-2 percent. There have been bouts of falls in all currencies, so this is global dollar strength. Dollar has also strengthened against the majors—euro, yen—but it has strengthened much more against Asian currencies. Dollar Asia has shot up sharply and therefore one has to read this as a global phenomenon.

Perhaps the anticipation of the market is that there is going to be some announcement of tapering sooner rather than later and people are moving in to take some kind of positions. Usually, when it is a global tsunami central bankers don't stand in the way because their money will count for nothing. It is like throwing sand on the wheel, it is not really going to help and that is why you are not seeing intervention.

Earlier in the morning corporates came in and offered dollars. But now, after rupee crossed 63.50-63.60, even they stopped offering. There are a lot of foreign bank buying, FIIs coming in and buying. So clearly they are moving out of their EM positions.

May not be in great hordes because even in low volumes this is bound to happen since nobody is offering at the opposite side people have to take what they get. So although FIIs will be moving at losses, they want to move. This is happening perhaps in thinner volumes than normal but it is a global trend, you cannot argue against this.

And in any case yesterday's measures were not to protect the rupee, they were to correct yield markets. If anything they perhaps took away some of the steps that were protecting the rupee. There was really nothing standing once the global tsunami hits. And it is not just currencies; there is also collateral damage on equities.