EMERGING MARKETS-Brazil real up on central bank, rates fall on Rousseff

Wed Mar 27, 2013 6:15pm EDT

* Brazil central bank intervenes to stem currency losses
    * Brazil rate futures drop on Rousseff's inflation comments
    * Brazil real gains 0.3 pct, Mexico peso up 0.1 pct

    By Walter Brandimarte
    RIO DE JANEIRO, March 27 (Reuters) - The Brazilian real rose
on Wednesday after the central bank intervened in the market to
stem currency losses, while interest-rate futures dropped
following comments by President Dilma Rousseff on inflation.
    Other Latin American currencies started the day with losses
as investors remained worried that the solution to Cyprus'
banking crisis, which included heavy losses for large
depositors, could be used as a template to resolve banking
problems in other troubled euro-zone economies.
    Later in the day, however, the currencies of Mexico and
Colombia rebounded in thin trading as many traders took off for
the Easter holidays. The Mexican peso rose 0.1 percent to
12.3450 per dollar while the Colombian peso gained
0.3 percent to 1,825.00 per greenback.
    The Brazilian real ended 0.35 percent stronger at
2.0090 per dollar after the central bank sold all of the 20,000
contracts of traditional currency swaps, which are derivatives
contracts designed to strengthen the real.
    Investors had been on the lookout for a possible central
bank intervention since last Thursday, when the real weakened
past the level of 2 per dollar - considered a boundary of an
informal trading range imposed by the central bank.
    On Tuesday, the real had closed at two-month low of 2.0160
per dollar.
    Many analysts believe Brazilian policymakers want the
currency to remain within a range of 1.95-2.0 reais per dollar,
slightly stronger than it was at the end of 2012, to avoid
inflation pass-through.
    "On one hand, the government is trying to curb inflation,
but at the same time, it is worried about local industry," said
Flavio Serrano, an economist with BES Investimento in Sao Paulo,
referring to the impact of the exchange rate on exports.
    "Maybe they found a comfortable level between 1.95 and 2.0
reais," he added.
    
    BRAZIL RATES
    Brazilian interest-rate futures fell sharply on the
BM&FBovespa exchange after President Dilma Rousseff said she
will not support policies that attempt to curb inflation by
slowing down the economy. 
    Investors interpreted her remarks as a sign that
policymakers were in no rush to hike the benchmark Selic rate,
currently at an all-time low of 7.25 percent.
    After interest rates fell, Rousseff said her comments were
misinterpreted, and that fighting inflation is a "value in
itself" in her government.
    Despite that, interest-rate futures closed lower. Contracts
maturing in January 2014 dropped 5 basis points to 7.74
percent.
    "The most important thing was the president's remark. It was
the same as saying that interest rates will not go up," said
Waldir Kiel, an economist with H.Commcor brokerage in Sao Paulo.
    
    Latin American FX prices at 2200 GMT:
    
 Currencies                         daily %    YTD %
                                     change   change
                            Latest           
 Brazil real                2.0090     0.35     1.54
                                             
 Mexico peso               12.3450     0.08     4.21
                                             
 Chile peso               472.2000    -0.02     1.38
                                             
 Colombia peso           1825.0000     0.33    -3.23
                                             
 Peru sol                   2.5910    -0.19    -1.54
                                             
 Argentina peso             5.1200     0.00    -4.05

 Argentina peso             8.3800    -0.95   -19.09
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