May 6, 2020 / 7:27 PM / 3 months ago

EMERGING MARKETS-Brazil's real continues to underperform; Central bank meetings watched

    * Brazil cenbank expected to cut rates; Chile seen holding
rates
    * Lower oil prices push Colombian, Mexican pesos lower
    * Mexican, Chilean shares rise

 (Adds details on Chile, updates prices)
    By Susan Mathew and Ambar Warrick
    May 6 (Reuters) - Brazil's real led Latin American
currencies lower on Wednesday after rating agency Fitch lowered
the country's credit rating to negative, while markets awaited
monetary policy decisions in Brazil and Chile.
    Ahead of an expected 50-basis-point cut in interest rates by
Brazil's central bank later in the day, Fitch overnight said the
country's economy is on course to shrink 4% this year, and noted
a rapidly deteriorating fiscal position due to the coronavirus,
amid growing political risks. 
    Brazil's real was down 1.8%. The currency is among
the worst performers this year among developing economies.
    Several Brazilian cities were seen either implementing or
planning lockdowns to curb the spread of the coronavirus. The
country is the worst hit by the pandemic in Latin America.

    Chile's peso dipped 0.6% ahead of a central bank
meeting later in the day. The bank had already slashed its
benchmark rate to 0.50%, its lowest level since 2009, and is
expected to stand pat today. 
    "We believe the policy rate has reached its terminal level.
Additional easing measures, if necessary, will now come from
extending liquidity provision and facilitating bank lending,"
Goldman Sachs analysts wrote.
    Other currencies in the region lost between 0.5% and 1.2%
against a stronger dollar, with Mexican and Colombian
pesos pressured by falling oil prices. MSCI's index of
Latin American currencies dropped 1.8%.
    "Already bleak growth prospects in the region now look
considerably more dire on the back of the dual virus-oil
shocks," Alejo Czerwonko, emerging markets strategist at UBS
Global Wealth Management told the Reuters Global Markets Forum. 
    "The region is set to experience the deepest contraction in
its modern economic history ... and the global financial crisis
of 2008 will pale in comparison to the output losses expected
for 2020," he said. UBS predicts a contraction of 6% annually
for the region as a whole, with a downside risk to the forecast.
 
    The Argentine peso hit new lows as a deadline for
bondholders to accept a tough $65 billion debt restructuring
loomed. A numbers of economists, including Nobel laureates
Joseph Stiglitz and Edmund S. Phelps, backed the government's
debt restructuring proposal on Wednesday.
    Among stocks, Mexican and Chilean bourses
edged up, although trading remained choppy as markets grappled
with the possibility of a renewed China-U.S. trade war. 

    Key Latin American stock indexes and currencies at 1913 GMT:
    
    Stock indexes             Latest       Daily % change
 MSCI Emerging Markets          898.29                  0.28
                                        
 MSCI LatAm                    1604.18                 -1.56
                                        
 Brazil Bovespa               79413.11                 -0.07
                                        
 Mexico IPC                   36894.32                  0.76
                                        
 Chile IPSA                    3988.04                  1.67
                                        
 Argentina MerVal             34486.90                 2.803
                                        
 Colombia COLCAP               1092.39                 -0.63
                                        
                                                            
       Currencies             Latest       Daily % change
 Brazil real                    5.6907                 -1.79
                                        
 Mexico peso                   24.2730                 -1.18
                                        
 Chile peso                      839.2                 -0.62
                                        
 Colombia peso                 3954.48                 -0.78
 Peru sol                       3.4118                 -0.71
                                        
 Argentina peso                67.0900                 -0.12
 (interbank)                            
                                        
 
 (Additional reporting by Lisa Pauline Mattackal and Aaron
Saldanha in Bengaluru; editing by Jonathan Oatis)
  
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