EMERGING MARKETS-Latam FX near flat as Brazil inflation tops f'cast

Fri Feb 22, 2013 11:42am EST

* Brazil mid-Feb inflation index up 0.68 pct, above forecast
of +0.61 pct
    * Brazil inflation data fuels bets cenbank to raise Selic
key rate
    * Brazil real, Mexican peso little changed after early gains

    By Natalia Cacioli and Paula Arend Laier
    SAO PAULO, Feb 22 (Reuters) - Brazil's currency and interest
rate futures rose on Friday after data showed an index of
consumer price inflation slowed less than forecast, fueling bets
the central bank will resort to a tighter monetary policy to
control prices.
    Encouraging business confidence data out of Germany
supported investor appetite for risk globally, buoying Latin
American currencies in general. Gains faded later in the global
trading day, however, as investors turned more cautious before
the weekend. 
    The Brazilian real  gained as much as 0.4
percent, recovering from two consecutive sessions of losses,
after a report showed a government-sponsored cut in electricity
rates slowed the country's inflation only slightly.
    But it last traded at 1.9713 reais per dollar, just slightly
stronger than Thursday's close.
    "We have a more positive environment abroad after the German
business confidence data, and here the IPCA-15 came in above
expectations, increasing bets that the exchange rate will be
used along with interest rates to fight inflation," said Luciano
Rostagno, chief strategist with WestLB bank in Brazil.
    Brazil's IPCA-15 inflation index, considered a preview of
the country's official IPCA index, climbed 0.68 percent in the
month to mid-February, less than the 0.88 percent rise in the
previous period, but above economists' forecast for a 0.61
percent increase. 
    Domestic interest rate futures rallied, with the contract
for January 2014 up 10 basis points to 7.77 percent, as
investors bet the central bank could raise the benchmark Selic
rate as early as March to fight inflation.
    Brazil's domestic yield curve priced in a slightly larger
than 50 percent chance of a Selic hike in March, said Vitor
Carvalho, senior trader with Ativa brokerage in Sao Paulo. By
May, the odds of a half-percentage-point increase in the Selic
reached 80 percent.
    Brazil's central bank has said it would maintain the Selic
at an all-time low of 7.25 percent for a "prolonged period," but
consistently higher-than-expected inflation prints have fueled
speculation the bank may change that language soon.
    
    Latin American FX prices at 1610 GMT:
    
 Currencies                           Daily  YTD pct
                                        pct   change
                            Latest   change  
 Brazil real                1.9710     0.06     3.50
                                             
 Mexico peso               12.7575    -0.02     0.84
                                             
 Chile peso               473.5000    -0.06     1.10
                                             
 Colombia peso           1802.7700    -0.21    -2.04
                                             
 Peru sol                   2.5820     0.00    -1.20
                                             
 Argentina peso             5.0275     0.05    -2.29

 Argentina peso             7.7900     0.51   -12.97
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