Brazil's real hits one-month high after 25-bps rate hike
Mexican economy up 1.1% y/y in August- preliminary estimate
South Africa joins easing club with 25 bps rate cut
Turkish central bank keeps rates steady, alters guidance
Latam FX up 0.3%, stocks up 0.2%
By Ankika Biswas
Sept 19 (Reuters) -Brazil's real outperformed its regional peers on Thursday after the central bank kicked off an interest rate-hiking cycle and signaled more increases, while key indexes for Latin American assets climbed after an outsized U.S. rate cut overnight.
The real BRL= hit a one-month high, strengthening 1% against the dollar, following an expected 25-basis-point rate hike and as the central bank hinted at upcoming rises to tackle a challenging inflation outlook driven by stronger-than-expected economic activity.
The rise in the benchmark Selic interest rate for the first time in over two years also comes in the face of the Federal Reserve's larger-than-usual 50-bps cut and projections of another half-a-percentage-point cut by year-end.
This widens the interest rate differential between Brazil and the U.S., likely supporting the real by attracting capital inflows and easing inflationary pressures through lower import prices.
"The fiscal framework remains vulnerable but, for now, we think authorities have done enough to calm markets on this front as risks for 2024 have subsided. The BCB is in a hiking cycle, building carry back into the FX while the rest of the world is easing rates," Barclays analysts noted.
The analysts recommended staying bullish on the real versus the dollar, owing to policy divergence.
The real's gains helped the MSCI gauge tracking Latam currencies .MILA00000CUS to gain 0.3% to a one-month high, while weakness in the Colombian peso COP= and Peru's sol PEN= capped gains in the index.
On the data front, a preliminary estimate showed Mexico's economy likely expanded 1.1% in August compared with the same month a year earlier. The Mexican peso MXN= edged 0.1% lower against the dollar.
The MSCI Latam stocks index .MILA00000PUS was up 0.2%, rising for the seventh straight session, led by strong gains in Argentine stocks .MERV.
Elsewhere, South Africa took a measured tone after its first rate cut in more than four years, saying although inflation had fallen faster than expected there were still risks to the outlook.
Turkey held its main interest rate steady at 50% for a sixth straight month, as expected, saying it remained highly attentive to inflation risks but removing a reference to potential tightening.
While the lira TRYTOM=D3 was little changed against the dollar, the main Istanbul stock index .XU100 climbed 2%.
Among other policy decisions, Angola left its main interest rate unchanged at 19.50% after inflation started easing last month, while Ukraine kept its key rate unchanged at 13% for the second consecutive time and said it expected inflation to continue to increase in the coming months.
Key Latin American stock indexes and currencies at 1500 GMT:
Equities | Latest | Daily % change |
MSCI Emerging Markets .MSCIEF | 1099.51 | 1.08 |
MSCI LatAm .MILA00000PUS | 2281.44 | 0.61 |
Brazil Bovespa .BVSP | 134220.51 | 0.35 |
Mexico IPC .MXX | 52762.9 | 0.34 |
Chile IPSA .SPIPSA | 6323.95 | -0.36 |
Argentina Merval .MERV | 1850185.36 | 1.92 |
Colombia COLCAP .COLCAP | 1312.04 | 0.37 |
Currencies | Latest | Daily % change |
Brazil real BRL= | 5.4104 | 0.96 |
Mexico peso MXN= | 19.305 | -0.11 |
Chile peso CLP= | 930.35 | 0.2 |
Colombia peso COP= | 4186.5 | -0.46 |
Peru sol PEN= | 3.7497 | -0.35 |
Argentina peso (interbank) ARS=RASL | 962.5 | 0 |
Argentina peso (parallel) ARSB= | 1240 | 2.419354839 |
Reporting by Ankika Biswas in Bengaluru
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