From Morgan Stanley’s latest scoreboard of currency intervention likelihood:
The “scoreboard” is based on the following:
— The current and expected pace of growth relative to our economists’ estimate of the trend rate of growth.
— The current and expected rate of inflation relative to the central bank’s own targets.
— The fiscal costs associated with intervention.
— The total level of foreign-currency denominated debt
relative to GDP.
— The current level of reserves relative to external liabilities and import coverage.
On the market side of the equation, we look at:
— The current level of the real effective exchange rate (REER) relative to the 5-year average.
— The change in the REER since the January 2009 (post-Lehman) lows.
— The recent momentum (3m/3m change) in the relevant USD(EUR)/EM cross.