EMERGING MARKETS-Mexican peso sours on interest rate cut warning
* Latam currencies drop as Intel outlook weighs on global mkts * Mexico peso loses 0.51 percent, Brazil real drops 0.17 percent By Michael O'Boyle and Walter Brandimarte RIO DE JANEIRO, Jan 18 (Reuters) - Mexico's currency and local rates fell on Friday after the central bank said it could cut interest rates if inflation continues to cool and the economy loses steam. The warning, issued after the bank's decision to keep borrowing costs unchanged at 4.5 percent, reduced investors' appetite for the Mexican peso, which fell 0.51 percent to 12.6600 per U.S. dollar, its biggest drop since Dec. 21 "If the cut materializes, it will lower the 'carry'," said Ezequiel Aguiree a strategist a Bank of America in New York, referring to the so-called carry trade in which investors borrow money in lower-yielding currencies such as the U.S. dollar or the Japanese yen to buy assets denominated in higher-yielding currencies such as the Mexican peso. Despite the weakening, Mexico's peso hit a 10-month high this week and bets on further gains in the Mexican currency on the Chicago exchange rose to a record high, with net-long contracts worth 75.8 billion pesos ($5.98 billion) by the week ending Jan. 15. Many analysts consider it unlikely that the central bank will take action soon to lower the interest rate, which has been on hold since mid-2009. Other Latin American currencies also weakened after a disappointing earnings outlook from chipmaker Intel overshadowed stronger-than-expected economic data from China. The Brazilian real dropped 0.17 percent to close at 2.0425 per U.S. dollar, nearing the upper limit of the narrow range of 2.0-2.05 per dollar where it has been trading since the end of 2012. Analysts bet, however, that the Brazilian central bank will not allow the real to weaken much past 2.05 per dollar for fear of inflation pass-through. Those concerns increased after the bank's board said, in a statement issued after their rate-setting meeting on Wednesday night, that the inflation outlook worsened in the short term, while economic activity continues to disappoint. The central bank's "post-decision communiqué acknowledges the growing challenges faced by monetary authorities, which in our view indicates that the central bank will keep its tight grip on the exchange rate at least through the inflationary hump expected in the first quarter of 2013," JPMorgan's analysts said in a note to clients. Latin American FX prices at 2307 GMT: Currencies daily % YTD % change change Latest Brazil real 2.0425 -0.17 -0.12 Mexico peso 12.6600 -0.51 1.61 Chile peso 471.5000 0.13 1.53 Colombia peso 1769.3000 -0.22 -0.19 Peru sol 2.5510 -0.12 0.00 Argentina peso 4.9500 0.00 -0.76 Argentina peso 7.4600 0.67 -9.12
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