EMERGING MARKETS-Brazil local yield curve steepens as short tightening cycle seen
By Walter Brandimarte RIO DE JANEIRO, Dec 11 (Reuters) - Yields paid on short-dated Brazilian interest-rate contracts dropped on Thursday after the central bank signaled its current monetary tightening cycle may be shorter than expected. Yields paid on long-dated contracts rose, causing the local yield curve to steepen, as a milder monetary tightening campaign was seen as insufficient to bring inflation back to target, demanding higher interest rates in the future. Bets on a less aggressive interest-rate campaign increased after the central bank said in minutes of its latest monetary policy meeting that future rate hikes should be done "sparingly." It also forecast inflation to enter "a long period of decline" at some point next year. "Today's minutes included many signs that the ongoing monetary tightening will not last much longer," BBVA economist Enestor dos Santos said in a research note. He forecast the central bank will stop raising rates in the first quarter of 2015 but considered it "unlikely" that inflation will converge to the 4.5 percent government target by 2016, as estimated by Brazilian policymakers. Yields paid on interest-rate contracts due in January 2016 dropped 3 basis points, while those paid on contracts maturing in January 2021 rose 15 basis points. Meanwhile the Brazilian real lost 0.4 percent to 2.62 per dollar, near a 9-1/2-year low, on uncertainty about the future of the central bank's currency intervention program. Central bank chief Alexandre Tombini has said the bank will make a decision by the end of the year on the future of the program, which supports the real by providing investors with currency hedge through the sale of forex swaps. Elsewhere in Latin America, the currencies of Mexico and Chile gained 0.3 percent and 0.1 percent, respectively, as oil and commodity prices halted their recent slide, supporting investors' appetite for risk. Key Latin American stock indexes and currencies at 1320 GMT: Stock indexes daily % YTD % change change Latest MSCI Emerging 949.07 -1 -4.39 Markets MSCI LatAm 2701.49 -0.47 -15.2 Brazil Bovespa 49478.6 -0.14 -3.94 Chile IPSA 3851.45 -0.21 4.12 Chile IGPA 18892.27 -0.18 3.65 Colombia IGBC 11091.05 0 -15.15 Currencies daily % YTD % change change Latest Brazil real 2.6210 -0.40 -10.08 Mexico peso 14.533 0.25 -10.34 Chile peso 615 0.12 -14.46 Colombia peso 2406.99 -0.44 -19.73 Peru sol 2.966 0.00 -5.83 Argentina peso 8.5500 0.03 -24.06 (interbank) Argentina peso 12.73 0.55 -21.45 (parallel) (Editing by Nick Zieminski)
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