Latin American currencies
Underperformed emerging market peers on Wednesday after the US
Federal Reserve’s projection for its target federal funds rate
came in higher than expected, while Brazil’s real slid on
shrinking economic activity.
The Fed raised interest rates by half a percentage point and
projected at least an additional 75 basis points of increases in
borrowing costs by the end of 2023 as well as a rise in
unemployment and a near stalling of economic growth in the
The world’s largest economy.
“At the moment, the buck is slightly up since the Fed
will indeed continue to hike interest rates, and are expected to
go to over 5.0% by the time they are done. Moves going forward
will be very data-dependent and I expect Powell to lean on that
for an uncertain 2023,” said Juan Perez, director of trading at
“BRL, MXN and LATAM all seem to be slightly weaker, but
we feel there will be other economic variables at play that will
improve currencies against the buck even with a hawkish, yet
Risky assets of emerging markets have taken a hit but
Investors expect EM to hold up against developed markets next
year with an HSBC survey predicting a “distinct improvement” in
investor sentiment, led by Latin America.
Brazil’s real slid 0.4% after data showed
economic activity contracted in October as aggressive
interest-rate hikes to battle inflation took a toll on growth.
Incoming Finance Minister Fernando Haddad has promised to
move up the timeline on new fiscal rules, seen as crucial to
sort out public finances, but has not committed to any dates.
Haddad also downplayed possible changes to the country’s
State-Owned Enterprise Law to make it easier for politicians to
take roles at state-run firms, saying effective auditing from
The federal government is more important.
President-elect Luiz Inacio Lula da Silva, meanwhile,
appointed Workers Party (PT) veteran Aloizio Mercadante to run
the development bank BNDES.
“The appointment of Mercadante for BNDES raises concerns
that the subsided credit loans policy implemented in the past
could resume,” Citigroup strategists said in a note.
Political unrest continued to weigh on the Peruvian sol
Peru’s defense minister announced a
nationwide state of emergency
which will take effect in the next few hours and allow
soldiers to assist police in maintaining public safety after a
week of fiery protests and road blockades sparked by the ousting
of former President Pedro Castillo.
“The unrest is already causing economic damage, and the
fallout will be even larger if protests start to impact mining
activity,” said Kimberley Sperrfechter, EM economist at Capital
Economics. Peru’s is the world second largest producer of
The Supreme Court is considering the prosecution’s request
for up to 18 months of preventative arrest for Castillo after he
was charged with rebellion and conspiracy.
Peru’s new government is looking at economic stimulus
Measures for regions roiled by protests, but will hold steady to
“non-negotiable” fiscal deficit targets, the economy minister
If the government loosens purse strings, that could put
Peru’s public finances under strain, while sustained protests
could lead to shortages, which would force the central bank to
stay restrictive as inflation will likely pick up, she said.
Key Latin American stock indexes and currencies:
Stock indexes Latest Daily %
MSCI Emerging Markets 972.79 0.78
MSCI LatAm 2064.24 -1.14
Brazil Bovespa 103673.93 0.13
Mexico IPC 50218.51 -0.23
Chile IPSA 5207.76 -0.36
Argentina MerVal 163784.33 -1.037
ColombiaCOLCAP 1221.13 -0.7
Currencies Latest Daily %
Brazil real 5.3173 -0.15
Mexico peso 19.7050 -0.99
Chile peso 871.9 -1.78
Colombia peso 4778 -0.33
Peru sol 3.8149 -0.31
Argentina peso (interbank) 172.0500 -0.15
Argentina peso (parallel) 316 -0.32
(Reporting by Susan Mathew and Bansari Mayur Kamdar in
Bengaluru; Editing by Arun Koyyur and Nick Zieminski)