* Brazil may allow more currency gains to curb inflation
* Mexico, Chile peso's unchanged as euro falls vs. dollar
* Brazil real up 1.05 pct, Mexico peso dips 0.02 pct
MEXICO CITY, April 7 Brazil's real surged on
Thursday as investors saw Brazilian policymakers as willing to
allow further gains in the currency to offset inflation
pressure, while Mexico's and Chile's pesos were little
Brazil announced a minor tax increase on foreign borrowing
on Wednesday to try to halt the real's appreciation, but the
measure was far less drastic than many had feared.
Brazil has tried a variety of measures to slow the real's
gains, but analysts said authorities had few options besides
severe capital controls that could spur sharp losses in the
real and risk further inflaming inflation by increasing import
"In the near term, tolerance for currency strength looks
increasingly a function of inflation expectations," RBS
Securities analyst Flavia Cattan-Naslausky wrote in a note.
Data showed consumer prices in Brazil rose more expected in
March, pushing the annual inflation rate near the top of a
government ceiling and putting more pressure on the central
bank to raise interest rates. [ID:nN07268340]
The real BRBY bid 1.05 percent stronger to 1.595 per
dollar as it trades near its strongest levels since August
Analysts at RBS and Barclays Capital both see the real now
firming to as strong as 1.50 per dollar as low interest rates
in major developed economies like the United States and Japan
boost the appeal of Brazil's double-digit debt yields.
Still, a widening current account deficit and less
favorable global liquidity conditions could cause Brazil's real
to weaken slightly over the next year, a Reuters poll showed on
Mexico's and Chile's pesos slipped from early gains as the
dollar firmed against the euro after European Central Bank
President Jean-Claude Trichet said a 25 basis point interest
rate hike was not necessarily the first in a series of
The weakness of the dollar against the euro had helped
support Latin American currencies against the greenback.
The Mexican peso pulled back from its 2-1/2 year intraday
high in the previous session.
Mexico's central bank chief signaled on Wednesday little
worry about the peso's gains, casting doubt on speculation that
Mexico could increase its pace of buying dollars.
Mexico's peso has lagged the gains seen in other emerging
market currencies. The currency's slide during the financial
crisis was steep, and it is still trading at much weaker levels
than before the crisis.
The Mexican peso MXN= dipped 0.02 percent to 11.8030 per
dollar. Chile's peso CLP=CL bid 0.06 percent weaker at 474
Offsetting the effect of a weakening euro, the Chilean peso
was supported by a rebound in prices for copper, the country's
main export. [ID:nLDE7360VP]
(Reporting by Michael O'Boyle; Editing by Padraic Cassidy)