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

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EMERGING MARKETS-Brazil interest rates futures fall on central bank's caution Mar 14th 2013, 15:42 Thu Mar 14, 2013 11:42am EDT * Investors expected clear sign of interest rate hike soon * Brazil minutes suggest central bank wants stable currency * Mexico peso falls 0.1 pct, Brazil real gains 0.2 pct By Walter Brandimarte 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. Meanwhile, most Latin American currencies were little changed, with the Mexican peso dipping after a string of five consecutive winning sessions. Brazil's interest-rate contract maturing in Jan. 2014 , one of the most traded, dropped 13 basis points to 7.83 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. Despite the fall in interest rate contracts, a slight majority of investors still bet Brazil will lift its benchmark Selic interest rate from an all-time low of 7.25 percent next month, according to calculations based on the domestic yield curve. In currencies, the Mexican peso dipped 0.1 percent after a string of five consecutive winning sessions which some investors feared could have taken the exchange rate too far. The Brazilian real gained 0.2 percent as a recent sell-off attracted exporters seeking a more favorable exchange rate for their dollars. The real will likely post only modest variations, however, as investors scrutinizing the central bank's minutes found more evidence that policymakers want the exchange rate to remain where it is. 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 1520 GMT: Currencies daily % YTD % change change Latest Brazil real 1.9650 0.23 3.82 Mexico peso 12.4600 -0.11 3.24 Chile peso 471.0000 0.00 1.63 Colombia peso 1797.4500 0.04 -1.75 Peru sol 2.5920 0.08 -1.58 Argentina peso 5.0800 0.00 -3.30 Argentina peso 7.9800 -0.75 -15.04 Link this Share this Digg this Email Reprints

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