February 23, 2017 / 3:19 PM / a year ago

EMERGING MARKETS-Brazilian rate futures narrow on bets of bigger cut

    By Bruno Federowski
    SAO PAULO, Feb 23 (Reuters) - Yields on Brazilian interest
rate futures narrowed on Thursday after the country's central
bank signaled it could accelerate the pace of cuts to lift the
economy from a deep recession.
    After the market close on Wednesday, central bank
policymakers voted to cut the benchmark Selic rate by 75 basis
points for the second straight time to 12.25 percent.

    A minority of traders had bet on a steeper cut of 100 basis
points after several reports showed a rapid drop in inflation
    In a statement following the meeting, the bank said the
future pace of loosening will hinge on the evolution of economic
activity and inflation.
    Traders said rate futures indicated a 40 percent probability
of a 100-basis-point cut in the central bank's April meeting,
with a 60 percent chance of a 75-basis-point reduction.
    Despite expectations of lower interest rates ahead, the
Brazilian real strengthened 0.2 percent, tracking
stronger demand for emerging market currencies.
    Traders said U.S. data on Thursday showing a slight rise in
weekly jobless claims reinforced expectations the Federal
Reserve will increase interest rates at a gradual pace
throughout the year. The Fed failed on Wednesday to provide a
clear signal of a rate hike in March in the minutes from its
latest policy meeting.
    A gradual pace of U.S. rate tightening would be good news
for emerging market assets, which tend to lure investors seeking
higher yields.
    Assets from oil-exporting economies, such as the Colombian
 and Mexican pesos, were the best performers as
crude futures rose after a surprising drop in U.S. inventories.
    Key Latin American stock indexes and currencies at 1440 GMT:
 Stock indexes                                daily %   YTD %
                                               change  change
 MSCI Emerging Markets                956.32     0.56   10.28
 MSCI LatAm                          2715.10     1.32   14.48
 Brazil Bovespa                     69303.63     1.04   15.07
 Mexico IPC                         47357.68     0.34    3.76
 Chile IPSA                          4378.44     0.06    5.47
 Chile IGPA                         21882.95     0.06    5.54
 Argentina MerVal                   20123.69     1.04   18.95
 Colombia IGBC                       9934.12     0.05   -1.92
 Venezuela IBC                      34809.74    -0.17    9.79
 Currencies                                   daily %   YTD %
                                               change  change
 Brazil real                          3.0622     0.21    6.11
 Mexico peso                         19.6680     1.22    5.47
 Chile peso                            639.7     0.34    4.85
 Colombia peso                        2866.5     1.06    4.71
 Peru sol                              3.236     0.28    5.50
 Argentina peso (interbank)          15.5600     0.10    2.02
 Argentina peso (parallel)             16.32     0.18    3.06

 (Reporting by Bruno Federowski; Editing by Paul Simao)
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