* Investors think Brazil will let real drop past 2.1/dlr
* Brazil's rates rise as weaker real feeds inflation fears
* Brazil's real drops 0.66 pct, Mexico's peso off 0.4 pct
By Walter Brandimarte and Natalia Cacioli
RIO DE JANEIRO, Nov 21 The Brazilian real led
losses among Latin American currencies on Wednesday, nearing a
level that has triggered central bank interventions in the past,
as investors speculated the government would favor a weaker
currency to boost the economy.
The Mexican peso also weakened, although a more
modest 0.4 percent, after failure by international lenders to
agree on emergency aid for Greece drove a bid for safe-haven
assets such as the dollar.
The Brazilian real lost 0.66 percent to 2.0944
per dollar, just shy of the ceiling of an informal trading range
of 2.0-2.1 per dollar, where it has been stuck since early July.
In the past several months, the central bank has intervened
in the market every time the real has neared the edge of that
range, keeping the currency at a level considered beneficial to
exporters, and at the same time, not too bad for inflation.
But concerns that Brazil's economy is taking too long to
recover have increased speculation that this time the government
would let the real weaken past the 2.1 per dollar mark. Such
adjustment would be minor, however, to minimize inflation
"Given a history of raising the ranges for the dollar-real
exchange rate over time, we imagine that the central bank is not
going to defend the 2.10 level," Citigroup's strategists Dirk
Willer and Kenneth Lam wrote in a research note.
"Raising the upper end of the ceiling to 2.12 or potentially
to 2.15 does seem plausible," they added.
Expectations that the government is about to let the
currency weaken further grew after President Dilma Rousseff told
local daily Valor Economico, in an interview published on
Tuesday, "We're looking for an exchange rate that is not this
one, with a devalued dollar and an overvalued real."
Joao Medeiros, a currency director with Pioneer brokerage in
Sao Paulo, said, "I don't see the fundamentals of this currency
move, but according to what Dilma said, the government wants a
In a note to clients, Nomura strategists said they expect
the real to weaken to 2.14 per dollar in the near future.
Other analysts expressed concern that a weaker currency
could further boost the price of imported grains and other
commodities, boosting an inflation rate that is already running
above the government target of 4.5 percent, with a tolerance
band of 2 percentage points up or down.
"With economic activity gaining momentum, another round of
real depreciation could have a larger effect on inflation, which
is an event we do not believe the central bank is looking for,"
Barclays' analysts Guilherme Loureiro and Marcelo Salomon wrote
in a research note.
Inflation concerns also drove Brazil's domestic yield curve
higher. Interest-rate contracts maturing in January 2014
rose 1 basis point to 7.34 percent.
The Mexican peso briefly firmed past the psychologically
important 13.000 per greenback level, which had not been touched
since Nov. 7. before falling back to 13.0575.
Flavia Cattan-Naslausky, a strategist with RBS Securities,
said the peso's fall was due to jitters ahead of the U.S.
Thanksgiving holiday on Thursday, which would thin market
liquidity, as well as bad news from Greece.
"The external headlines have pushed a risk off environment
here," she said.
Latin American currencies at 22:00 GMT
Currencies daily % year-to-
change ate %
Brazil real 2.0944 -0.66 -10.79
Mexico peso 13.0575 -0.40 6.98
Argentina peso* 6.3600 0.00 -25.63
Chile peso 477.8000 0.02 8.69
Colombia peso 1,815.5100 0.02 6.77
Peru sol 2.5930 0.23 4.01
* Argentine peso's rate between