EMERGING MARKETS-Brazil real, rates jump on inflation fears
* Brazil inflation hits fastest monthly rate since April 2005 * Central bank chief says "concerned" about inflation * Cenbank source says inflation to moderate in 2nd half of 2013 * Brazil real gains 0.9 pct, Mexican peso 0.2 pct weaker By Walter Brandimarte RIO DE JANEIRO, Feb 7 (Reuters) - Brazil's currency gained more than 1 percent while interest-rate contracts soared on Thursday after data showed January consumer inflation ran at its fastest monthly pace in nearly eight years. The data, which fueled bets that policymakers will have to strengthen the currency or tighten monetary policy to keep prices under control, had its market impact magnified when central bank president Alexandre Tombini said he was "concerned about inflation in the short term." The real strengthened as much as 1.3 percent to 1.9610 per dollar to its highest level in nine months following his comments, made in an interview with the O Globo newspaper. It last traded at 1.9698 per greenback, 0.9 percent stronger on the day. Adding to Tombini's remarks, a source on the central bank's monetary policy board said a more stable exchange rate will help inflation ease "a lot" as of July after a more difficult first half of the year. After weakening about 30 percent against the dollar between July and November, the real has gained about 8 percent since then. Last week it pierced the 2 per dollar mark for the first time in seven months as investors bet the central bank would resort to a stronger currency to cheapen the price of imported goods and put a lid on inflation. "What changed in the economic outlook from last year was inflation. The government is now signaling an exchange rate closer to 2 reais," said Mauricio Nakahodo, an economic consultant with Tokyo-Mitshubishi bank in Sao Paulo. The central bank is now likely to tolerate a real as strong as 1.95 per dollar, Nakahodo added. Interest-rate futures also soared after the government said the benchmark IPCA price index rose 0.86 percent in January, fueled by more expensive food. In the 12 months through January, inflation rose to 6.15 percent, nearing the 6.5 percent ceiling of a government target. Interest-rate contracts maturing in January 2014, one of the most traded, jumped 10 basis points to 7.45 percent -- its highest level since mid-October. Elsewhere in Latin America, currencies were flat to weaker as renewed euro zone concerns increased investors' aversion to risky assets. The Mexican peso lost a quarter of a percentage point while the Chilean peso ended little changed. Latin American FX prices at 1805 GMT: Currencies daily % YTD % change change Latest Brazil real 1.9698 0.90 3.56 Mexico peso 12.7125 -0.24 1.19 Chile peso 472.3000 0.04 1.36 Colombia peso 1792.0100 -0.03 -1.45 Peru sol 2.5790 -0.08 -1.09 Argentina peso 4.9925 -0.10 -1.60 Argentina peso 7.6600 0.52 -11.49
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