EMERGING MARKETS-Brazil rates up on rate hike bets, Mexico cut eyed

Thu Mar 7, 2013 6:36pm EST

* Brazil central bank signals Selic may rise soon
    * Brazil January industrial output higher than forecast
    * Brazil real gains 0.43 pct, Mexican peso unchanged


    By Walter Brandimarte
    RIO DE JANEIRO, March 7 (Reuters) - Yields on Brazil's
interest-rate futures jumped on Thursday after the central bank
signaled it may fight inflation with interest rate hikes, while
a rise in Mexican consumer prices did not deter bets on a cut as
soon as Friday.
    Brazil's central bank kept the country's benchmark interest
rate at an all-time low of 7.25 percent on Wednesday night, but
the board removed a pledge to keep rates unchanged for a
"prolonged period" and said its next move would depend on the
evolution of inflation and growth data. 
    Yields on interest rate futures rose sharply as
investors bet the bank could raise the base Selic rate as early
as April.
    "Given the meaningful change in language, and the fact that
such change was followed by a hike in the past two hiking
cycles, the curve should move to price-in the possibility of a
hike in April," Ken Lam, a strategist with Citi, wrote in a note
to clients.
    The Mexican peso was flat a day ahead of a key central bank
rate decision that could mark its first interest rate cut in
nearly 4 years, if governors brush off a recent uptick in
consumer prices. 
    Data on Thursday revealed inflation had accelerated in
February to break a four-month easing streak, a month after the
Central Bank began hinting it might cut rates if growth flags
and inflation continues to ease..
    The inflation uptick did not deter investors, who are
betting on slightly less than even odds for a 25 basis point cut
on Friday and are tilting toward 50 basis points in April or
June, in line with the majority in the Reuters poll. 
  
    The peso inched up 0.02 percent to 12.76 per dollar.  
    In Brazil, interest-rate contracts maturing in Jan 2014
 jumped 13 basis points to 7.79 percent, while those
expiring in Jan 2017 gained 11 basis point to 9.09
percent.
    Higher-than-forecast industrial production for January
supported the view that Brazil's economy is gradually
recovering, adding to bets on a higher Selic.   
    The expectation of higher interest rates could attract more
dollars into Brazil, helping the real  gained 0.43
percent to 1.9600 per dollar. But investors are still wary the
central bank could intervene to curb any sharp moves in the
exchange rate.
    
    Latin American FX prices at 2300 GMT:    
    
 Currencies                    daily   YTD %
                                   %  change
                              change  
                      Latest          
 Brazil real          1.9600    0.43    4.08
                                      
 Mexico peso         12.7600    0.02    0.82
                                      
 Chile peso          471.800    0.21    1.46
                           0          
 Colombia peso       1802.60    0.30   -2.03
                          00          
 Peru sol             2.6010    0.27   -1.92
                                      
 Argentina peso       5.0625   -0.05   -2.96

 Argentina peso       7.8000    0.38  -13.08
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