Reuters: US Dollar Report: EMERGING MARKETS-Brazil interest rate futures fall on central bank's caution

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EMERGING MARKETS-Brazil interest rate futures fall on central bank's caution Mar 14th 2013, 23:52 Thu Mar 14, 2013 7:52pm EDT * Investors had expected clear sign of interest rate hike soon * Brazil minutes suggest central bank wants stable currency * Mexico peso rises 0.04 pct, Brazil real falls 0.2 pct By Walter Brandimarte and Jean Arce RIO DE JANEIRO, March 14 (Reuters) - Brazil's interest rate futures dropped on Thursday after the central bank said it will be cautious about its next policy steps because of lingering economic uncertainties, disappointing investors who expected a clear sign of an imminent monetary tightening. The Mexican peso barely managed to continue its string of six consecutive winning sessions while most Latin American currencies were little changed. Brazil's interest-rate contracts maturing in January 2014 , one of the most traded, dropped 16 basis points to 7.80 percent. Longer-date contracts fell less, causing the yield curve to steepen, on bets that the central bank would have to raise rates more sharply in the future to deal with inflation. In minutes, released on Thursday, of its latest monetary policy meeting, the central bank said it will be very cautious about its next monetary policy steps as uncertain factors could lift already high inflation. "As the central bank didn't bring any forceful sign that interest rates will go up in April, markets are adjusting to the possibility that they might rise a little later," said Silvio Campos Neto, an economist with Tendencias consultancy in Sao Paulo. In currencies, the Mexican peso eked out a gain of 0.04 percent to trade 12.9743 per dollar, barely maintaining its string of six consecutive winning sessions which some investors feared may have taken the exchange rate too far. "It's profit-taking after (the peso) failed to establish itself below 12.40 (per dollar) level," said Pedro Tuesta, an economist at 4Cast in Washington, D.C. The strength of the peso, which has been hovering around highs not seen in 18 months, has fueled speculation that policymakers may drop a mechanism triggering automatic offer of dollars if the peso weakens sharply. The Brazilian real , which fell 0.24 percent to 1.9743 per dollar, will likely post only modest changes as investors scrutinizing the central bank's minutes found more evidence that policymakers want the exchange rate to stay put. In the document, the central bank board noted that a "recent moderation in certain asset prices" will contribute to ease inflation pressures, as long as they remain at their current levels. Investors immediately understood that the real's exchange rate, which has strengthened more than 8 percent since the end of November, was one of the assets the central bank was referring to. "The minutes suggested the central bank is comfortable with the current exchange rate," said Luiz Fernando Genova, a trader with Daycoval bank in Sao Paulo. "So the real will likely remain between 1.95 to 2.0 per dollar." Latin American FX prices at 23:15 GMT: Currencies daily YTD % % change change Latest Brazil real 1.9743 -0.24 3.33 Mexico peso 12.4278 0.04 3.51 Chile peso 471.300 -0.06 1.57 0 Colombia peso 1798.25 0.00 -1.79 00 Peru sol 2.5930 0.04 -1.62 Argentina peso 5.0850 -0.10 -3.39 Argentina peso 7.9700 -0.63 -14.93 Link this Share this Digg this Email Reprints

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