EMERGING MARKETS-Brazilian real tumbles over 1%, lags Latam FX peers
Adds comments, bullets; Updates prices throughout
By Shreyashi Sanyal
March 15 (Reuters) - Brazil's real underperformed broader emerging market peers on Monday, after its best week in more than three months, with eyes on a central bank meeting where surging inflation is expected to force a rate hike.
The real BRBY, BRL= fell 1.3% to 5.631 per dollar after gaining 2.5% last week. On the year, the currency is one of the worst-performing among emerging market peers, down nearly 8% compared with a 0.6% slip in the broader EM index .MIEM00000CUS.
"Prospects for the Brazilian real suffered from a surprise Supreme Court decision to overturn the conviction of former President Lula da Silva," said Alejo Czerwonko, chief investment officer, emerging markets Americas at UBS.
Czerwonko said this combined with current Brazilian President Jair Bolsonaro's push for more fiscal spending to appeal to voters would increase the already high level of fiscal risk in the country and advised investors to remain on the sidelines while investing in the real.
Brazil's expected inflation for 2021 shot up to a new high of 4.6%, a central bank survey showed, significantly above the bank's year-end target of 3.75%. Rising inflation, deepening fiscal uncertainty and a weak exchange rate could see a 50 basis point increase in interest rates on Wednesday, a Reuters poll showed. nL8N2LA568
The hike would be the first in six years.
The bank sold 10,000 foreign exchange swaps contracts at auction on Monday, continuing its intervention to support the currency.
Meanwhile, Bolsonaro is weighing candidates to replace Health Minister Eduardo Pazuello, sources said, in what would be the fourth person in a year in the role as COVID-19 cases rage out of control. nL1N2LD10H
As the dollar strengthened, EM currencies trimmed gains, with some moving into the red. FRX/
Mexico's peso MXN= rose, while copper producer Chile's peso CLP= tracked prices of the red metal higher. The Chilean peso is among the best performing Latam currency year-to-date thanks to copper prices hitting decade highs. MET/L
Colombia's peso COP= extended losses to a third straight session as crude prices declined. O/R
Focus this week will be on the U.S. Federal Reserve's rate decision on Wednesday as well as the first meeting between Washington and Beijing since U.S. President Joe Biden took office.
Latam stocks rallied, with Argentine shares .MERV in the lead, up 2.9% to hit over two-week highs.
Key Latin American stock indexes and currencies at 1916 GMT:
Stock indexes | Latest | Daily % change |
MSCI Emerging Markets .MSCIEF | 1340.60 | -0.56 |
MSCI LatAm .MILA00000PUS | 2299.41 | -0.29 |
Brazil Bovespa .BVSP | 114652.22 | 0.43 |
Mexico IPC .MXX | 47769.87 | 0.2 |
Chile IPSA .SPIPSA | 4913.94 | 0.4 |
Argentina MerVal .MERV | 50501.83 | 2.916 |
Colombia COLCAP .COLCAP | 1357.59 | 0.29 |
Currencies | Latest | Daily % change |
Brazil real BRBY | 5.6311 | -1.29 |
Mexico peso MXN=D2 | 20.6694 | 0.27 |
Chile peso CLP=CL | 722.4 | 0.18 |
Colombia peso COP= | 3557.72 | 0.44 |
Peru sol PEN=PE | 3.7027 | 0.16 |
Argentina peso (interbank) ARS=RASL | 91.0600 | -0.22 |
Argentina peso (parallel) ARSB= | 143 | -0.70 |
(Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru;
Editing by Marguerita Choy)
((Shreyashi.Sanyal@thomsonreuters.com; +1 646 223 8780; +91 961 144 3740; Twitter: https://twitter.com/s_shreyashi;))