Reuters: US Dollar Report: EMERGING MARKETS-Mexico yields see-saw ahead of cenbank minutes

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EMERGING MARKETS-Mexico yields see-saw ahead of cenbank minutes Jan 31st 2013, 23:37 Tweet Share this Email Print Related Topics Currencies » Bonds News » Bonds » Markets » Thu Jan 31, 2013 6:37pm EST * Mexico minutes could reinforce views on rate cut possibility * Peru, Costa Rica move to limit hot money flows By Michael O'Boyle MEXICO CITY, Jan 30 (Reuters) - Mexican yields were little changed on Thursday ahead of the release of central bank minutes that could either deepen or undermine bets that policymakers could soon cut interest rates. Mexican bond yields recently hit record lows, and interest rate swaps are pricing in a 25 basis point cut to the country's benchmark rate of 4.50 percent by September. In a policy U-turn at its January meeting, the central bank moved from warning of a potential rate hike to saying it could cut borrowing costs if inflation keeps cooling. Minutes from the meeting are due Friday at 0900 local time. The minutes "may show that there was no consensus, at least one director will highlight that it is not yet the time to (cut) and that we need these trends to consolidate," said Alberto Ramos, an economist at Goldman Sachs in New York. One reason to cut might be to discourage flows of hot money into the economy this year that could strengthen the peso currency to the point where it makes exports less competitive and crimps growth. The yield on Mexico's benchmark 10-year bond fell 1 basis point to 5.03 percent after bidding up earlier in the session. The yield is trading just above record lows below 5 percent. The Mexican peso firmed 0.13 percent to 12.7105 per dollar. The peso has shed 1.2 percent since the central bank signaled it could cut rates. Foreign investors have been piling into Mexican bonds; foreign holdings of peso debt jumped 60 percent last year and are still rising. "There is a element of preemptiveness to get ahead of the curve, with the steady flows into bonds," Ramos said. "They do not have an exchange rate problem yet, but they could have one down the road." An easing in the euro zone's debt crisis and new economic stimulus measures in Japan are seen fueling bumper investment flows into Latin America and other emerging markets in 2013 and policymakers are trying to ward off unwanted currency strength. Mexico has eschewed the types of direct intervention and capital controls that other countries have used. Peru's sol currency finished bidding 0.31 percent weaker at 2.575 per dollar on Thursday, a day after the central bank tightened reserve requirements to soften the impact of heavy capital inflows. The sol is near a 16-year high and the central bank has intervened in the currency market every day since late August to buy dollars, but it did not step in on Thursday. Meanwhile, Costa Rica said it will limit lending to limit the attractiveness of an interest rate gap that has sparked a credit boom and drawn in potentially destabilizing foreign capital. The Brazilian real was little changed as the market eyed how far policymakers would let the currency firm. The real hit a seven-month high on Tuesday, breaking past the 2-per-dollar mark on bets the central bank will allow further gains as policymakers fret about a recent move higher in inflation. But its advance has stalled this week after Finance Minister Guido Mantega warned that the government was ready to correct any excessive moves in the exchange rate. Brazil has used a series of measures to keep the real from gaining too much in recent years. The real closed at 1.9885 per dollar, 0.05 percent weaker than Wednesday's close. Latin American FX prices at 21:15 GMT: Currencies daily % YTD % change change Latest Brazil real 1.9885 -0.05 2.59 Mexico peso 12.7105 0.15 1.21 Chile peso 471.1000 0.00 1.61 Colombia peso 1775.2700 0.07 -0.52 Peru sol 2.5750 -0.31 -0.93 Argentina peso 4.9775 -0.05 -1.31 Argentina peso 7.8900 -1.14 -14.07 Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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