Brazil's real falls further ahead of interest-rate decision
Brazil's real hits five-month low, traders expect rate hold
BofA predicts end of easing cycle, sees possible final 25bp cut
Lula criticizes central bank chief
By Sruthi Shankar
June 19 (Reuters) -The Brazilian real fell to a fresh five-month low against the dollar on Wednesday as traders braced for a pause in the central bank's monetary-easing cycle amid higher inflation expectations.
The real BRL= weakened to 5.4677 per dollar, hovering near its lowest level since early January, while most other currencies in the region, including the Mexican peso MXN=, also dipped in light trading due to a U.S. market holiday.
Brazil's central bank is widely seen leaving the benchmark Selic rate at a still-high 10.50%, according a Reuters poll, ending a series of six 50-basis-point rate cuts, which it kicked off last year.
The focus now is on how long the pause will last, after surprisingly strong consumer price data in May sealed the case for a possible decision to keep rates unchanged.
"The easing cycle is already over, based on market pricing. We believe there is one final 25bp (basis-point)rate cut but it is a close call. The important thing, however, is that real policy rates would remain at a contractionary level for the rest of the year," BofA analysts said in a recent note.
"Even with a 25bp rate cut to 10.25%, the ex-ante real rate would be around 7.3%, well above the 4.5% the central bank views as neutral."
Brazil President Luiz Inacio Lula da Silva criticized the central bank on Tuesday, saying its chief, Roberto Campos Neto, was harming Latin America's largest economy, while signaling he will appoint a substitute who is not swayed by market jitters.
With a more than 10% drop this year, the real is among the worst-performing currencies in the region, hurt by increasing fiscal worries and a drop in speculative flows due to a reduction of spreads between Brazilian and U.S. interest rates.
Brazil's main Bovespa stock index .BVSP slipped 0.8%.
Among other currencies, the Chilean peso CLP= rebounded more than 1% as copper prices climbed and the central bank raised its GDP and inflation forecast for 2024.
Chile's central bank lowered its benchmark interest rate by 25 basis points to 5.75% on Tuesday, in line with market expectations, in a bid to boost the South American country's economy.
Key Latin American stock indexes and currencies:
Latest | Daily % change | |
MSCI Emerging Markets .MSCIEF | 1094.42 | 1.17 |
MSCI LatAm .MILA00000PUS | 2158.49 | -0.8 |
Brazil Bovespa .BVSP | 119075.27 | -0.46 |
Mexico IPC .MXX | 53270.82 | 0.06 |
Chile IPSA .SPIPSA | 6558.33 | 0.24 |
Argentina MerVal .MERV | 0.00 | 0 |
Colombia COLCAP .COLCAP | 1389.75 | 0.01 |
Currencies | Latest | Daily % change |
Brazil real BRBY | 5.4677 | -0.63 |
Mexico peso MXN=D2 | 18.4403 | -0.25 |
Chile peso CLP=CL | 926.6 | 1.12 |
Colombia peso COP= | 4164.52 | -0.53 |
Peru sol PEN=PE | 3.81 | -0.33 |
Argentina peso (interbank) ARS=RASL | 903.5000 | 0.00 |
Reporting by Sruthi Shankar in Bengaluru; Editing by Rod Nickel
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