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EMERGING MARKETS-Currencies rally, Russian rouble hits 2-year high despite rate cut

reuters.com · 04/29/2022 09:12
EMERGING MARKETS-Currencies rally, Russian rouble hits 2-year high despite rate cut

Russia central bank cuts key rate by 300 bps to 14%

Colombian central bank seen hiking by 100 bps

Mexican economy grows for first time in three quarters

Currencies of Brazil, Chile, South Africa up more than 1%

By Susan Mathew

- Russia's rouble hit a two-year peak against the dollar and the euro on Friday as capital controls helped it weather another a larger-than-expected interest rate cut, while other emerging market currencies rallied as the dollar retreated from 20-year highs.

The rouble RUB= reached 67.7750 against the dollar in the interbank market before trading back to around 71, while against the euro EURRUB= it hit 71.

The Central Bank of Russia cut its key rate by another 300 basis points to 14% on Friday, and said it saw room for cutting rates further this year, as it tries to manage a shrinking economy and soaring inflation in the wake of Moscow's military attack on Ukraine. nL5N2WR43UnR4N2VY02R

"An interest rate cut today had been well-signalled by the CBR ... and the decision seems to reflect the strength of the rouble, the easing of financial stability risks and the recent sharp slowdown in inflation pressures on a week-by-week basis," said Liam Peach, emerging Europe economist at Capital Economics.

"It's clear that the central bank is thinking about how the economy will adapt to a new growth model and that it should not keep interest rates too restrictive it if hinders this transition. Further rate cuts towards 10% by year-end now look likely."

Investors will now be looking to Colombia's central bank meeting, with its board set to raise the benchmark interest rate by 100 basis points to 6%. nL2N2WQ2C8

This would bring the total uptick in Colombia's borrowing costs to 425 basis points since September 2021 as the central bank tries to combat persistent inflation pressures.

"We will be vigilant of the board's comments on the inflation outlook, as global price pressures are likely to persist and the economy continues displaying a stronger-than-expected performance. In particular, we will be watchful of the board's possible comments on the future pace of hikes," said Credit Suisse analyst Alberto Rojas.

As the dollar slipped, an index of emerging market currencies .MIEM00000CUS moved away from near a 1-1/2-year low, with several Asian currencies rallying strongly, while South Africa's rand ZAR= snapped a nine-session losing streak to jump 1.7%. FRX/

Latin American currencies also firmed, with Brazil's real BRBY up 1.4%, while Chile's peso CLP= jumped 1.3% to make back all of its losses on Thursday.

The Mexican peso MXN= recovered from a six-week low, bolstered by preliminary data that showed the country's economy grew in the first quarter from the previous three-month period for the first time in three quarters. The figure, however, was slightly below forecasts. nL2N2WR0XX


Key Latin American currencies at 1254 GMT:

Currencies

Latest

Daily % change

Brazil real BRBY

4.8700

1.43

Mexico peso MXN=D2

20.2921

0.71

Chile peso CLP=CL

847.1

1.16

Colombia peso COP=

3977.9

0.00

Peru sol PEN=PE

-

-

Argentina peso (interbank) ARS=RASL

115.1800

-0.12



(Reporting by Susan Mathew in Bengaluru; editing by Paul Simao)

((susan.mathew@thomsonreuters.com;))