May 7, 2018 / 3:42 PM / a year ago

EMERGING MARKETS-LatAm currencies extend slide; Argentine peso up

    By Bruno Federowski
    BRASILIA, May 7 (Reuters) - Most Latin American currencies
extended their slide on Monday due to persistent concerns over
rising U.S. interest rates, but the Argentine peso firmed for a
second day in the wake of a sharp rate hike.
    Currencies from Chile, Mexico, Brazil
 and Colombia slipped between 0.3 and 1.2 percent.
    Emerging-market currencies have taken a hit in recent weeks
as traders shed high-yielding assets on expectations that
accelerating U.S. inflation and a widening fiscal deficit could
force the Federal Reserve to tighten policy faster.
    The Argentine peso, by far the worst-performing currency in
the region this year, edged up for a second straight day of
trading, supported by decisive central bank action.
    Argentine policymakers jolted the country's battered
currency back to life on Friday with a set of announcements
intended to restore confidence in the president's ability to
deliver sustainable growth while cutting inflation.
    The central bank sharply raised its monetary policy rate to
40 percent, sparking a 5.1 percent jump in the local peso to
21.88 per U.S. dollar. The government also soothed investors'
nerves by cutting its fiscal deficit target to 2.7 percent of
gross domestic product.
    The 40 percent rate "can temporarily support an exchange
rate of 21.6, but the heavy positioning, loss of credibility and
reputational cost make 22 (pesos) a new fair rate in our view,"
BTG Pactual economists said in a note.
    Argentina's new policies were the strongest reaction yet in
Latin America to capital outflows that are forcing policymakers
to take action.
    Brazil's central bank has stepped up sales of currency
swaps, which function like sales of dollars for future delivery,
since the Brazilian real touched the milestone of 3.55 per
dollar for the first time since June 2016.
    Brazil's currency has still lost 6.6 percent in 2018, the
second-largest decline in Latin America, weighed down by fears
about the most hard-to-predict presidential race in decades.
    Economists at Nomura Securities said in a report that
currency investors are betting that the likely winner of this
year's elections will not pursue market-friendly reforms to curb
a growing fiscal deficit.
    "The market appears to be pricing in a 25 percent
probability of a reformist victory in the election, a percentage
that we find reasonable right now," the report said.
    "We believe the market will continue to trade poorly unless
there is a meaningful increase in the likelihood of a
'reformist' winning the election. Unfortunately, we are likely
still months away from gaining any clarity on this."

    Key Latin American stock indexes and currencies at 1510 GMT:
 Stock indexes                           daily %   YTD %
                                          change  change
 MSCI Emerging Markets          1138.78     0.23   -1.92
 MSCI LatAm                     2838.57    -0.51    0.88
 Brazil Bovespa                83420.37     0.36    9.19
 Mexico IPC                    46960.31    -0.07   -4.85
 Chile IPSA                     5645.77     0.42    1.46
 Chile IGPA                    28442.93     0.35    1.65
 Argentina MerVal              28945.14     1.37   -3.73
 Colombia IGBC                 12313.77      0.1    8.29
 Currencies                              daily %   YTD %
                                          change  change
 Brazil real                     3.5459    -0.65   -6.56
 Mexico peso                    19.4235    -0.99    1.42
 Chile peso                      628.65    -1.16   -2.23
 Colombia peso                     2829    -0.34    5.41
 Peru sol                         3.279    -0.27   -1.28
 Argentina peso (interbank)     21.8000     0.37  -14.68
 Argentina peso (parallel)        21.65     0.23  -11.18
 (Reporting by Bruno Federowski
Editing by Alistair Bell)
Nuestros Estándares:Los principios Thomson Reuters
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