Reuters: US Dollar Report: EMERGING MARKETS-Brazil real, rates slide after disappointing GDP

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EMERGING MARKETS-Brazil real, rates slide after disappointing GDP Nov 30th 2012, 23:51 Fri Nov 30, 2012 6:51pm EST * Brazil's 3rd-quarter GDP grows 0.6 pct, half what was expected * Mexico keeps rates on hold, backs off from hike threat * Brazil real drops 1.57 pct, Mexico peso stable By Walter Brandimarte and Jean Arce RIO DE JANEIRO/MEXICO CITY, Nov 30 (Reuters) - Brazil's currency slid on Friday after data showed the country's economy grew at half the rate economists expected in the third quarter, bolstering bets the government will accept a weaker real to boost growth. Elsewhere in Latin America, currencies were dragged down by an ongoing stalemate in the United States over how to avoid a package of tax increases and spending cuts set to kick in on Jan 2 that could plunge that country into recession. On Friday, President Barack Obama accused a "handful of Republicans" in the House of Representatives of holding up legislation to extend tax cuts for middle-class Americans to try to preserve them for the wealthy. Republican U.S. House of Representatives Speaker John Boehner said Republicans and Obama are locked in a stalemate, a month before a $600 billion "fiscal cliff" is set to kick in . The Chilean peso fell 0.37 percent to close at 8.01 per greenback. The Mexican peso paired recent gains, falling 0.13 percent to close at 12.9640 per dollar after Mexico's central bank backed away from a threat to raise interest rates, a move which would boost the appeal of the currency. The rate decision came just one day ahead of the inauguration of President-elect Enrique Pena Nieto, who is hoping to win over skeptics about the return of the centrist Institutional Revolutionary Party, or PRI. The party's reputation was marred by corruption, authoritarianism and allegations of vote-rigging during its 71-year rule from 1929 to 2000. But investors may be more interested in developments north of the border. "The markets next week will be affected by the news about the fiscal negotiations in the U.S. Congress, rather than the positive news that could come out of the new Mexican government," said Alfredo Coutino, director for Latin America at Moody's Analytics. The Brazilian real fell 1.57 percent to 2.1299 per dollar after the government statistics agency IBGE said gross domestic product expanded 0.6 percent in the third quarter from the second quarter. Economists expected the economy to grow 1.2 percent in that comparison. Second-quarter growth was also revised down to only 0.2 percent, half what had been previously reported. Also contributing to the real's weakness were dollar outflows that normally take place at the end of the month, when companies send profits abroad. "Today is the end of the month, so we're seeing some outflows," said Ures Folchini, a treasury vice president at WestLB bank in Sao Paulo. Folchini bets the real will gradually weaken as the government continues to favor a weaker currency to boost the economy, but warns of inflation risks. "We need to be very careful. We can't have the real weakening too much to help the economy while, on the other hand, inflation erodes those gains." LOWER SELIC? With the government running out of alternatives to stimulate the economy, some investors debated whether the central bank may resume its monetary easing cycle, interrupted just this month. That expectation knocked down domestic interest-rate futures. The contract maturing in January 2014, one of the most traded, plunged 11 basis points to 7.2 percent. "The interest-rate market is melting because of the GDP," said Luis Otavio de Souza Leal, chief economist with Banco ABC Brasil in Sao Paulo. "The market is even discussing the possibility of a Selic cut in January." Brazil's central bank kept the country's base interest rate at an all-time low of 7.25 percent on Wednesday, signaling the rate will remain at that level for a "prolonged period." The GDP data at least makes the case for a stable Selic for a long time, despite concerns about inflation, economists said. Latin American FX prices at 1553 GMT Currencies daily % year-to- change ate % Latest change Brazil real 2.1299 -1.57 -12.27 Mexico peso 12.9640 -0.13 7.76 Argentina peso* 6.4200 0.31 -26.32 Chile peso 480.8000 -0.37 8.01 Colombia peso 1,815.0000 0.01 6.80 Peru sol 2.5780 -0.08 4.62 * Argentine peso's rate between brokerages Link this Share this Digg this Email Reprints

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