London - The Russian rouble stepped back from all-time lows on Friday after the central bank left interest rates on hold and hinted at tighter future policy, while evidence of economic recovery boosted Central European currencies.
The benchmark emerging equity index was on track for its biggest weekly gain since early October, helped by a rebound in Chinese shares.
The rouble briefly fell to a record low against the euro and the dollar-euro basket, before erasing losses.
The Russian central bank held its key policy rate as expected, but warned that it may tighten policy if a weakening rouble causes inflation to deviate from its mid-term targets.
“After the central bank meeting the rouble is strengthening a bit but the market is reluctant to go long the rouble, we could see it stuck a bit,” said Sebastien Barbe, head of emerging market strategy at Credit Agricole in Paris.
“It's unlikely to appreciate too much but since the central bank moved into a strong intervention mode the market is convinced it will find the central bank in its way if it tries to move the rouble lower.”
The central bank said it expected inflation to fall close to its 5 percent target by end-2014, while noting that a major source of uncertainty for the forecast was a rise in food prices at the end of last year and the rouble's depreciation.
The Nigerian naira stayed close to two-year lows a day after a sharp tumble forced the central bank to intervene.
The country's hard currency reserves have fallen nearly 8 percent since the start of the year.
Ghana's cedi currency hit another all-time record against the dollar.
The dollar/cedi is on track for the biggest weekly gain since 2008.
But currencies of “Fragile Five” economies reliant on external capital have fared better, having been under extreme pressure in the past month.
The Indonesian rupiah rose to 11-week highs after data showed a contraction in the current account deficit that has made it particularly vulnerable.
The currency was headed for its biggest weekly gain since October.
India, also posted better inflation numbers in fresh signs of data improvement, boosting local bonds and the rupee, while the South African rand rose 0.3 percent to 10.95.
The Turkish lira was also firmer.
Currencies in central Europe rallied versus the euro with the Czech crown at a four-week high and the forint rising 0.4 percent after stronger-than-expected growth data.
The Romanian economy expanded more than 5 percent in the fourth quarter.
Many see the current stabilisation in emerging markets as temporary, however, with currency weakness resuming as the Federal Reserve withdraws its monetary stimulus further.
“This is very much a currency story. Currencies are key driver of emerging markets because it's a key source of return,” said Russ Koesterich, chief investment strategist for BlackRock.
“Discussions on emerging markets often begin and end with currencies. For that we will see more vulnerability ahead.”
Signals from China were more mixed on Friday with factory gate prices down for the 23rd consecutive month, consistent with other recent data showing economic weakness.
Nevertheless, stock markets in mainland China and Hong Kong were set for their biggest weekly gains since September led by healthcare stocks. - Reuters