CORRECTED-EMERGING MARKETS-Mexico peso rallies despite rate cut
(Corrects 3rd paragraph to show Mexico cut rate to 4.0 pct, not to 4.5 pct) * Mexico c.bank cuts rates by 50 bps, says not starting easing cycle * Bets Brazil will hike rates increase after inflation data * Mexico peso rallies 0.7 pct, Brazil real gains 0.6 pct By Walter Brandimarte RIO DE JANEIRO, March 8 (Reuters) - Mexico's peso rallied on Friday even after policymakers cut interest rates for the first time in nearly four years, while the Brazilian real gained on bets that higher-than-forecast inflation would force the central bank to tighten monetary policy. The level of domestic interest rates usually has a direct impact on market appetite for local assets. But in the case of Mexico, investors focused on improving prospects for the economy following the central bank's decision to make an one-off cut of 50 basis points in benchmark borrowing costs. In a decision unforeseen by most economists, the Banco de Mexico brought its base interest rate to a record low of 4.0 percent, a move that analysts expect to bolster Latin America's second-largest economy. The bank added that the move was not the beginning of a monetary easing cycle, which limited the potential depreciation of the peso, noted Enrique Alvarez, head of Latin America strategy at IDEAglobal in New York. "The market will see that as a signal that they're trying to get ahead of the curve in terms of (supporting) growth," said Alvarez. "I don't think there will be a lot of depreciation in the peso notwithstanding the rate cut." The Mexican peso added to gains after the central bank decision and last traded at 12.673 per dollar, 0.7 percent stronger than Thursday's close. The real rose 0.6 percent to 1.9489 per dollar after reaching its strongest intraday level since May, 2012. Some analysts fear the central bank could intervene to curb currency gains after the real crossed the 1.95-per-dollar mark that many analysts considered the boundary of an informal trading range imposed by the central bank. Gains in Brazil's currency followed data showing consumer prices jumped more than expected in February despite a government-sponsored cut in electricity rates. The data added to prospects of higher interest rates in the next few months. Banks such as JPMorgan recommended investors stay long the Brazilian currency, betting that further gains would be spurred by a hike in the base Selic rate and by inflows coming from external funding sources for Brazil's medium-term infrastructure projects. Other Latin American currencies were little changed as data showing U.S. employers stepped up hiring in February fueled speculation that the Federal Reserve may tone down its ultra-loose monetary policy, potentially reducing dollar inflows to emerging markets. Latin American FX prices at 1630 GMT: Currencies Daily YTD pct pct change Latest change Brazil real 1.9489 0.57 4.67 Mexico peso 12.6730 0.70 1.51 Chile peso 471.4000 0.08 1.55 Colombia peso 1801.6500 0.05 -1.98 Peru sol 2.6020 -0.04 -1.96 Argentina peso 5.0650 0.00 -3.01 (interbank) Argentina peso 7.8000 0.26 -13.08 (parallel) (Editing by Dan Grebler)
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