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Carry on wishing

Where's the carry trade when rate-setters need it?

Swaha Pattanaik 

Swaha Pattanaik Traders' practice of borrowing low-rate currencies, such as the yen, to invest in higher-yielding ones has been blamed in the past for fuelling asset bubbles. These so-called carry trades probably would be welcomed right now by those central bankers who want weaker currencies. Monetary policymakers are out of luck. Carry trades only thrive in certain conditions. Interest rate differentials between funding and target currencies need to be wide enough and likely to persist. Traders also need to be fairly confident that the funding currency won't suddenly appreciate and wipe out ...

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First Published: Tue, February 09 2016. 21:31 IST