EMERGING MARKETS-Brazil real, rates slide after disappointing GDP

Fri Nov 30, 2012 6:51pm 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 1.57 pct, Mexico peso stable


    By Walter Brandimarte and Jean Arce
    RIO DE JANEIRO/MEXICO CITY, Nov 30 (Reuters) - Brazil's
currency slid on Friday after data showed the country's economy
grew at half the rate economists expected in the third quarter,
bolstering bets the government will accept a weaker real to
boost growth.
    Elsewhere in Latin America, currencies were dragged down by
an ongoing stalemate in the United States over how to avoid a
package of tax increases and spending cuts set to kick in on Jan
2 that could plunge that country into recession.
    On Friday, President Barack Obama accused a "handful of
Republicans" in the House of Representatives of holding up
legislation to extend tax cuts for middle-class Americans to try
to preserve them for the wealthy. 
    Republican U.S. House of Representatives Speaker John
Boehner said Republicans and Obama are locked in a stalemate, a
month before a $600 billion "fiscal cliff" is set to kick in
.
    The Chilean peso fell 0.37 percent to close at 8.01 per
greenback.
    The Mexican peso paired recent gains, falling 0.13
percent to close at 12.9640 per dollar after Mexico's central
bank backed away from a threat to raise interest rates, a move
which would boost the appeal of the currency. 
     The rate decision came just one day ahead of the
inauguration of President-elect Enrique Pena Nieto, who is
hoping to win over skeptics about the return of the centrist
Institutional Revolutionary Party, or PRI.
    The party's reputation was marred by corruption,
authoritarianism and allegations of vote-rigging during its
71-year rule from 1929 to 2000. But investors may be more
interested in developments north of the border.
     "The markets next week will be affected by the news about
the fiscal negotiations in the U.S. Congress, rather than the
positive news that could come out of the new Mexican
government," said Alfredo Coutino, director for Latin America at
Moody's Analytics.
    The Brazilian real  fell 1.57 percent to 2.1299
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 %  year-to-
                                        change     ate %
                              Latest              change
 Brazil real                  2.1299     -1.57    -12.27
                                                
 Mexico peso                 12.9640     -0.13      7.76
                                                
 Argentina peso*              6.4200      0.31    -26.32
                                                
 Chile peso                 480.8000     -0.37      8.01
                                                
 Colombia peso            1,815.0000      0.01      6.80
                                                
 Peru sol                     2.5780     -0.08      4.62
                                                
 * Argentine peso's rate between                        
 brokerages
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