EMERGING MARKETS-Brazil real up for 4th straight day, rates sink

Thu Dec 6, 2012 3:26pm EST

* Brazil seen further stimulating dollar inflows
    * More banks betting Brazil will cut interest rates in 2013
    * Brazil real gains 0.8 pct, Mexican peso rises 0.3 pct

    By Walter Brandimarte
    RIO DE JANEIRO, Dec 6 (Reuters) - Brazil's real gained for a
fourth consecutive session on Thursday while domestic interest
rates plunged on signs that policy-makers became more concerned
about the impact of a weak currency on inflation and investment.
    Other key Latin American currencies also rose as investors'
appetite for risk held steady on hopes for progress in U.S.
budget negotiations. The Mexican peso climbed 0.3
percent, while the Chilean peso rose 0.5 percent.
    The Brazilian real  gained 0.8 percent to 2.0785
per dollar as investors anticipated dollar inflows will pick up
in the next few weeks as a result of recent government measures
that facilitate foreign corporate borrowing and export
financing. 
    The real has fallen nearly 2.5 percent this week since the
government began dismantling capital control measures taken
earlier this year, when the real was stronger than 1.8 per
dollar.
    The recent actions, combined with media reports saying
policy-makers became more concerned about the outlook for
inflation and private investment, signaled a reversal in
Brazil's currency strategy, which for months consisted in
weakening the real in order to support exporters.
 
    "The government now wants a real stronger than 2.10 to curb
inflation and to make room for additional interest-rate cuts,"
said a trader with a large Brazilian bank in Sao Paulo.
    "I believe the recent weakness in the real did not stimulate
exports as expected and, instead, had strong impact on
inflation," the trader added.
    Brazil's interest-rate futures fell sharply as a growing
number of bank research departments - including those of
Santander, Barclays and Itau BBA - started betting the central
bank will resume its monetary easing cycle next year.
    The interest-rate contract maturing in January 2014 
fell 9 basis points to an all-time low of 6.91 percent,
extending a series of declines that started last Friday, when
government data showed Brazil's economy grew at half the pace
expected by economists in the third quarter.
    
    Latin American FX prices at 2005 GMT:
    
 Currencies                 Latest    Daily  YTD pct
                                        pct   change
                                     change  
 Brazil real                2.0775     0.87   -10.04
                                             
 Mexico peso               12.8965     0.28     8.32
                                             
 Argentina peso*            6.4200     0.31   -26.32
                                             
 Chile peso               476.9000     0.48     8.89
                                             
 Colombia peso          1,799.5000     0.68     7.72
                                             
 Peru sol                   2.5750     0.16     4.74
                                             
 * Argentine peso's rate between                    
 brokerages
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