Brazilian assets battered after proposed fiscal steps fail to impress
Mexican peso recoups some losses
Brazilian real briefly hits six per dollar
Latam FX down 1.2%, stocks slip 1.4%
By Shashwat Chauhan
Nov 28 (Reuters) -Brazil's real hit a lifetime low on Thursday after the government's proposed income tax reform sparked a bruising selloff, while the Mexican peso rebounded on a day when trading activity was expected to be thin due to a U.S. market holiday.
The real BRL= tumbled 0.8% to 5.9877 per dollar, briefly hitting the level of 6.0 after Brazil's government late on Wednesday proposed to expand income tax exemptions for lower earners and increase taxes on those who earn more, while outlining plans to trim public spending in coming years.
"Brazil has too much domestic currency government debt, stemming from too many tax exemptions and too much public spending," said Hasnain Malik, head of equity research at Tellimer Research.
"The need to finance large fiscal deficits leads to high interest rates, well in excess of inflation, which, in turn, lead to higher government financing costs and throttled private sector growth."
Uncertainty over the fiscal measures has been driving volatility in Brazilian markets amid concerns that the government has not done enough to meet new budget rules passed last year to rein in the growth of public debt.
Brazilian equities .BVSP also extended their selloff, with the index falling more than 1% to its lowest level in more than three months.
On Thursday, Finance Minister Fernando Haddad sought to soothe market jitters by stating that the reforms will be fiscally neutral and analyzed by Congress in time to take effect in 2026.
Mexico's peso MXN= recouped some of this week's losses to rise 1.2%. It had been jolted this week by U.S. President-elect Donald Trump saying he would impose a 25% tariff on imports from Canada and Mexico.
Minutes from the Mexican central bank's last policy meeting are also due later in the day.
MSCI's index for Latin American currencies .MILA00000CUS was down 1.2% as of 10:03 a.m. ET, its lowest in more than three months.
The stock index .MILA00000PUS slid 1.4%, touching its lowest level in more than two years.
EM assets have experienced a torrid November as investors mull the implications of Trump's policies on trade, tariffs and immigration, with the possibility of a global trade war.
Chile's peso CLP=, Brazil's real and the Mexican peso are amongst the worst performing EM currencies so far this year. Chile's peso is down about 11% against the dollar, while the Brazilian and Mexican currencies are down about 20%.
Markets in the United States were shut for the Thanksgiving holiday.
HIGHLIGHTS
** Mexican president says did not discuss tariffs in call with Trump
** Producer prices in Brazil rise 0.94% in October
Key Latin American stock indexes and currencies:
Equities | Latest | Daily % change |
MSCI Emerging Markets .MSCIEF | 1080.31 | -0.67 |
MSCI LatAm .MILA00000PUS | 2014 | -1.45 |
Brazil Bovespa .BVSP | 126084.98 | -1.24 |
Mexico IPC .MXX | 49882.5 | 0.19 |
Chile IPSA .SPIPSA | 6589.2 | 0.16 |
Argentina Merval .MERV | 2216006.93 | 0.488 |
Colombia COLCAP .COLCAP | 1397.85 | 0.03 |
Currencies | Latest | Daily % change |
Brazil real BRL= | 5.9877 | -0.84 |
Mexico peso MXN= | 20.3428 | 1.15 |
Chile peso CLP= | 978.33 | -0.13 |
Colombia peso COP= | 4388.5 | -0.11 |
Peru sol PEN= | 3.75 | -0.05 |
Argentina peso (interbank) ARS=RASL | 1009 | -0.05 |
Argentina peso (parallel) ARSB= | 1100 | 2.27 |
Reporting by Shashwat Chauhan in Bengaluru; Editing by Kevin Liffey
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