Real underperforms Latam peers as investors assess Lula's remarks
Updated at 1503 GMT
Bank of Mexico seen holding key interest rate at 11%, poll shows
Brazil's inflation slows in mid-June despite food price pressure
Kenya president backs down on tax rises after deadly protests
Latam stocks, FX down 0.8% each
By Johann M Cherian
June 26 (Reuters) -Brazil's real underperformed its Latin American peers on Wednesday, hitting levels last seen 19 months ago as investors assessed President Lula's comments on government spending and the local central bank's standing on monetary policy.
The currency BRL= dropped nearly 1% on the day.
President Luiz Inacio Lula da Silva pushed back against spending cuts in an interview with local media outlet UOL, while adding that the current levels of interest rates of 10.5% were high with inflation at 4%.
Traders have been on edge about central bank independence after the regulator shifted to a more hawkish stance on interest rates recently. The real and the benchmark share index .BVSP are among bottom performers in the region.
Still, Felipe Camargo, senior emerging markets economist at Oxford Economics said: "We expect President Lula to limit himself to a combative rhetoric, but not actively intervene or make politically motivated central bank board appointments that could undermine its credibility."
Separately, data showed consumer prices in the region's largest economy rose less than expected by mid-June despite pressure from food inflation.
MSCI's index tracking currencies in resources-rich Latin America .MILA00000CUS dropped 0.8% to a two-week low, as the dollar strengthened.
Market participants await a crucial U.S. inflation report due on Friday that could offer more clues on the trajectory of the Federal Reserve's monetary policy trajectory, which could impact the strength of the greenback.
Oil exporter Mexico's peso MXN= depreciated 0.6% as investors prepared for a Banxico monetary policy decision on Thursday, while also keeping an eye out for executive appointments in President elect Claudia Sheinbaum's new government.
A Reuters poll showed the local central bank is expected to hold its benchmark interest rate steady at 11%, as inflationary pressures continue and the peso's depreciation following the June 2 general elections.
Fellow oil producer Colombia's peso COP= also dropped 0.8%, while copper producer Chile's peso CLP= slipped 0.7%.
On the equities front, an index tracking regional stocks .MILA00000PUS dropped 0.8%.
Heavy-weight Brazil's Bovespa .BVSP shed 0.5%, as yields on local bonds BR2YT=RR, BR5YT=RR, BR10YT=RR climbed over 10 basis points each.
Mexico's main stock index .MXX added 0.2%, while Chilean equities .SPIPSA gained around 1.6%.
Argentina's MerVal index .MERV shed 0.5%, with attention squarely on the vote on several bills in the country's lower house due on Thursday, that could influence president Javier Milei's plans for the embattled economy.
Elsewhere in emerging markets, Kenya's president withdrew planned tax rises, bowing to pressure from protesters who had stormed parliament, launched demonstrations across the country and threatened more action this week. The local shilling KES= however was flat.
Key Latin American stock indexes and currencies:
Latin American market prices from Reuters | ||
Stock indexes | Latest | Daily % change |
MSCI Emerging Markets .MSCIEF | 1085.82 | 0.05 |
MSCI LatAm .MILA00000PUS | 2178.24 | -0.83 |
Brazil Bovespa .BVSP | 121755.20 | -0.47 |
Mexico IPC .MXX | 52674.32 | 0.13 |
Chile IPSA .SPIPSA | 6515.33 | 1.61 |
Argentina MerVal .MERV | 1560882.64 | -0.62 |
Colombia COLCAP .COLCAP | 1367.93 | 0 |
Currencies | Latest | Daily % change |
Brazil real BRBY | 5.4999 | -0.84 |
Mexico peso MXN=D2 | 18.1600 | -0.37 |
Chile peso CLP=CL | 948.5 | -0.91 |
Colombia peso COP= | 4109.5 | -0.55 |
Peru sol PEN=PE | 3.8175 | -0.43 |
Argentina peso (interbank) ARS=RASL | 910.0000 | -0.05 |
Argentina peso (parallel) ARSB= | 1360 | 0.37 |
Reporting by Johann M Cherian in Bengaluru; Editing by Emelia Sithole-Matarise
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