EMERGING MARKETS-Brazil real, rates slide after disappointing GDP

Fri Nov 30, 2012 11:18am EST

* Brazil's 3rd-quarter GDP grows 0.6 pct, half what was
expected
    * Mexico keeps rates on hold, backs off from hike threat
    * Brazil real drops 0.6 pct, Mexico peso stable

    By Walter Brandimarte
    RIO DE JANEIRO, Nov 30 (Reuters) - Brazil's currency and
interest rate futures slid on Friday after data showed the
country's economy grew only half what economists expected in the
third quarter, suggesting the government may resort to a weaker
currency and low interest rates to prop up economic activity.
    Elsewhere in Latin America, investors traded cautiously
ahead of a statement from President Barack Obama on U.S. budget
negotiations. 
    Month-end purchases kept the Mexican peso stable even
after the country's central bank backed away from a threat to
raise interest rates. Higher rates could further increase the
appeal of the currency. 
    The Brazilian real  fell 0.6 percent to 2.1085
per dollar after the government statistics agency IBGE said
gross domestic product expanded 0.6 percent in the third quarter
from the second quarter. 
    Economists expected the economy to grow 1.2 percent in that
comparison. Second-quarter growth was also revised down to only
0.2 percent, half what had been previously reported.
    Also contributing to the real's weakness were dollar
outflows that normally take place at the end of the month, when
companies send profits abroad.
    "Today is the end of the month, so we're seeing some
outflows," said Ures Folchini, a treasury vice president at
WestLB bank in Sao Paulo.
    Folchini bets the real will gradually weaken as the
government continues to favor a weaker currency to boost the
economy, but warns of inflation risks.
    "We need to be very careful. We can't have the real
weakening too much to help the economy while, on the other hand,
inflation erodes those gains."
    
    LOWER SELIC?
    With the government running out of alternatives to stimulate
the economy, some investors debated whether the central bank may
resume its monetary easing cycle, interrupted just this month.
    That expectation knocked down domestic interest-rate
futures. The contract maturing in January 2014, one of
the most traded, plunged 11 basis points to 7,2 percent.
    "The interest-rate market is melting because of the GDP,"
said Luis Otavio de Souza Leal, chief economist with Banco ABC
Brasil in Sao Paulo. "The market is even discussing the
possibility of a Selic cut in January."
    Brazil's central bank kept the country's base interest rate
at an all-time low of 7.25 percent on Wednesday, signaling the
rate will remain at that level for a "prolonged period."   
    The GDP data at least makes the case for a stable Selic for
a long time, despite concerns about inflation, economists said.
    
    Latin American FX prices at 1553 GMT
    
 Currencies                         daily %    YTD %
                                     change   change
                            Latest           
 Brazil real                2.1085    -0.58   -11.38
                                             
 Mexico peso               12.9385     0.07     7.97
                                             
 Argentina peso*            6.4200     0.31   -26.32
                                             
 Chile peso               480.8000    -0.37     8.01
                                             
 Colombia peso          1,814.2300     0.05     6.84
                                             
 Peru sol                   2.5770    -0.04     4.66
                                             
 * Argentine peso's rate between                    
 brokerages
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