Reuters: US Dollar Report: EMERGING MARKETS-Brazil yields price in rise on officials' hints

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EMERGING MARKETS-Brazil yields price in rise on officials' hints Apr 12th 2013, 21:59 Tweet Share this Email Print Related Topics Currencies » Bonds News » Bonds » Markets » Fri Apr 12, 2013 5:59pm EDT * Tombini, Mantega comments signal rate hike next week * Mexican peso pulls back from 20-month high * Brazil real firms 0.18 pct, Mexico peso dips 0.45 pct By Tiago Pariz and Noe Torres SAO PAULO/MEXICO CITY, April 12 (Reuters) - Yields on Brazil's interest-rate futures surged on Friday and the real firmed after top officials signaled interest rates would rise next week, surprising a market that expected increases later this year. Central bank chief Alexandre Tombini and Finance Minister Guido Mantega said at separate events the government will not tolerate high inflation. Mantega specifically stated that interest rates could move up. The central bank is under growing pressure to raise rates from the current record low of 7.25 percent after inflation broke through the top end of the official target in March and curbed consumer spending in February. "Inflation is the source of the economy's problems," said chief economist Eduardo Velho at INVX Global Partners. "The rise in interest rate futures is a reflection of this outlook. Tombini's statement consolidated the gains, as it was made clear that (the benchmark interest rate) will rise in April." Yields on interest rate futures jumped, fully pricing in a 25 basis point rise next week to the country's benchmark interest rate of 7.25 percent. The real currency bid 0.18 percent firmer at 1.9679 per dollar, its strongest in nearly five weeks. A Reuters poll on Thursday showed 45 of 53 analysts expected the central bank to leave its key rate steady at its record low at the April 16-17 meeting. Mexico's peso shed 0.33 percent to 12.0775 per dollar as it pulled back from a 20 month high, hit in the previous session. Before Friday's dip, the peso gained nearly 7 percent so far this year, backed by optimism the new government will manage to pass key economic reforms through a divided Congress, while authorities insist they will not directly intervene to curb currency gains. "(Today's loss) is profit taking after a big rally, we will surely see further gains in coming days," said Esteban Velázquez, an analyst at Allianz Fondika in Mexico City. Analysts are eyeing further gains in the real and the peso after the Bank of Japon added to a global flood of monetary stimulus last week that will continue to provide a steady flow of yen and dollars seeking higher-yielding assets. The peso is set to test the key 12 per dollar level next week. Many investors likely structured bets against the peso well before the Bank of Japan's stimulus and a break of the 12 level might trigger a wave of stop loss selling. Latin American FX prices at 2100 GMT: Currencies daily YTD % % change change Latest Brazil real 1.967 0.18 3.60 Mexico peso 12.0934 -0.46 6.49 Chile peso 470.0000 -0.21 1.85 Colombia peso 1826.800 -0.13 -3.33 0 Peru sol 2.5870 -0.19 -1.39 Argentina peso 5.1475 -0.05 -4.57 Argentina peso 8.4100 0.36 -19.38 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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