EMERGING MARKETS-Mexico peso gains as inflation jump corners cenbank

Fri Mar 22, 2013 5:42pm EDT

* Mexican inflation jumps above cenbank target
    * Further interest rate cuts unlikely until inflation cedes
    * Mexico peso gains 0.7 pct, Brazil real flat


    By Michael O'Boyle
    MEXICO CITY, March 22 (Reuters) - The Mexican peso firmed on
Friday after higher than expected inflation backed bets Mexico's
central bank will be unable to further lower borrowing costs in
the coming months, while Brazil's real was flat.
    Mexican inflation picked up more than expected in early
March, overshooting the central bank's 4 percent ceiling just
weeks after an interest rate cut in Latin America's No. 2
economy. 
    Minutes from the March 8 meeting were released on Friday,
and they hinted that policymakers could cut interest rates again
if economic growth weakens. 
    Analysts said policymakers will want to lower borrowing
costs again if the peso continues to surge, potentially hurting
exporters. But the jump higher in consumer prices could keep the
central bank from moving anytime soon to lower borrowing costs.
    "An acceleration of inflation pressures (even above what the
board expected) might make it hard for the board to continue
cutting in the coming months even if there is further economic
weakness," Nomura analyst Benito Berber wrote in a note to
clients.
    "Therefore, we expect the peso to continue rallying," he
said.
    Mexico's peso gained 0.7 percent to 12.3540 per
dollar, heading back near a more than 1-1/2 year high hit
earlier in the week.
    Reports during the session that Cyprus was nearing a deal to
prevent a collapse of its banking system encouraged investors to
pour money into higher-yielding emerging market stocks and
currencies. 
    The peso also has been helped by investor confidence that
the new government will be able to push long-stalled economic
reforms through a divided Congress.
    Mexican lawmakers approved early on Friday a sweeping
telecommunications bill that is aimed at fostering competition
in the industry.   
    Despite the increased appetite for risk, the Brazilian real
 bid flat at 2.0095 per dollar, staunching early losses
after weakening in the previous two sessions as greenbacks
flowed out of the country.
    Outflows from Brazil totaled $726 million in the first 20
days of March and more than $3.2 billion since the beginning of
the year, according to central bank data.
    "Dollars have been in short supply since December," said
Reginaldo Siaca, a manager at Advanced brokerage in Sao Paulo.
He forecast the central bank may soon intervene in the market if
the exchange rate continues to depreciate towards 2.03 reais per
dollar.
    Reinforcing expectations of government action, Brazil's
central bank president Alexandre Tombini said in an event in Sao
Paulo that the bank stands ready to intervene to ensure the
currency market works properly. 
    In Argentina, peso trading on the black market shriveled on
Friday after government officials reportedly pressured players
to freeze operations before the Easter holidays begin late next
week, traders in Buenos Aires said.
    The Argentine peso closed at 8.42/8.48 per dollar on Friday
, according to Reuters, easing back after the ask price
surged to 8.75 per dollar on Wednesday amid uncertainty over the
government's currency policy.
    On the official interbank market, the peso was trading at
5.11/5.1125 per dollar. This represents a 66 percent
gap, or spread, versus the black market.

    Latin American FX prices at 2100 GMT:
 Currencies                         daily   YTD %
                                        %  change
                           Latest  change  
 Brazil real               2.0095    0.00    1.52
                                           
 Mexico peso              12.3540    0.70    4.13
                                           
 Chile peso              472.7000   -0.02    1.27
                                           
 Colombia peso          1829.1000   -0.51   -3.45
                                           
 Peru sol                  2.5900    0.04   -1.51
                                           
 Argentina peso            5.1100   -0.20   -3.86

 Argentina peso            8.4200    0.36  -19.48
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