EMERGING MARKETS-Brazil rates rally on inflation surprise

Fri Dec 7, 2012 9:07am EST

* Brazil IPCA inflation rise 0.6 pct in Nov, above forecasts
    * Mexican peso gains after stronger-than-expected US
payrolls
    * Brazil real flat, Mexico peso gains 0.2 pct

    By Danielle Fonseca and Natalia Cacioli
    SAO PAULO, Dec 7 (Reuters) - Brazil's interest-rate futures
rallied on Friday after higher-than-forecast inflation data
reduced the scope for additional monetary easing next year,
while the Mexican peso gained after encouraging U.S. payrolls
data.
    Bets that Brazil would cut its base Selic rate next year to
boost a faltering economy have knocked down domestic interest
rates to all-time lows this week. The sell-off started last
Friday, after data showed the country's economy grew at only
half the pace expected by economists in the third quarter.
    But interest-rate contracts jolted higher on Friday after
Brazil's statistics bureau said November inflation accelerated
to 0.6 percent, above economists' expectations for a 0.5 percent
reading. 
    Interest-rate contracts maturing in January 2014,
one of the most traded, jumped 13 basis points to 7.0 percent.
That contract traded above 7.3 percent last week, before the
disappointing GDP figure, and slid to 6.87 percent on Thursday.
    "What's boosting those contracts is mostly the
higher-than-expected IPCA, which poured cold water on those who
expected interest rates to fall," said Decio Pereira Filho, a
trader with Socopa brokerage in Sao Paulo.
    "The latest comments by Tombini also reinforced the view
that the Selic will remain stable," he added.
    Brazil's central bank president Alexandre Tombini repeated
late on Thursday that the Selic rate should remain at an
all-time low of 7.25 percent for a "prolonged" period.
 
    His comments echoed the content of minutes of the bank's
latest monetary policy meeting, released earlier on Thursday,
but the mere repetition of the "prolonged period" expression led
some traders to interpret that bets on additional rate cuts were
premature.
    
    CURRENCIES STEADY
    Meanwhile, the Brazilian real  was little
changed at 2.0762 per dollar as investors wondered what the
government is trying to accomplish with a series of measures
that drove the currency nearly 2.5 percent higher during the
past four sessions.
    The measures, which included strong central bank
intervention and tax changes to facilitate dollar inflows,
signaled an apparent reversal in a recent government strategy
that favored a weaker currency to boost exports. 
    "The weekend is upon us so folks get more cautious.
Investors' trust is shaken, they're asking themselves, 'what are
the government's intentions?'," said Jaime Ferreira, a manager
at the currency desk at Intercam brokerage in Sao Paulo.
    Other Latin American currencies posted gains after data
showed the U.S. economy created 146,000 new jobs in November,
more than the 93,000 positions expected by economists.
 
    The data supported appetite for risk globally, although the
outlook for the U.S. labor market still seemed tepid as the
country's jobless rate fell because people gave up searching for
work.
    The Mexican peso gained 0.2 percent, while the
Chilean peso edged 0.1 percent higher.
    
    Latin American FX prices at 1350 GMT:
    
 Currencies                         daily %    YTD %
                                     change   change
                            Latest           
 Brazil real                2.0762     0.06   -10.00
                                             
 Mexico peso               12.8400     0.23     8.80
                                             
 Argentina peso*            6.4200     0.31   -26.32
                                             
 Chile peso               476.5000     0.06     8.98
                                             
 Colombia peso          1,798.3500     0.06     7.79
                                             
 Peru sol                   2.5750     0.16     4.74
                                             
 * Argentine peso's rate between                    
 brokerages
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