June 7, 2018 / 2:34 PM / in a month

EMERGING MARKETS-Brazil real plummets despite central bank intervention

    By Bruno Federowski
    BRASILIA, June 7 (Reuters) - The Brazilian real on Thursday
plummeted to its weakest in more than two years, as concerns
over the nation's fiscal outlook added fuel to a sell-off
despite increased central bank intervention.
    The currency tumbled as much as 1.9 percent to 3.9132
to the dollar, extending losses to  4.8 percent so far this
month. It is down nearly 19 percent since February.
    Rising U.S. bond yields have hit demand for emerging market
assets in general, but Brazilian markets have been particularly
affected after several opinion polls and a nationwide truckers'
strike against high diesel prices cast doubt on bets that the
winner of this year's elections will stick to a market-friendly
agenda.
    The sell-off drove the central bank to increase sales of
currency swaps, which function like sales of dollars for future
delivery, in a bid to cushion volatility.
    Yet the real was still the biggest loser among Latin
American currencies, surpassing even the Mexican peso,
which has been hard hit by fears that the North American Free
Trade Agreement (NAFTA) negotiations may deteriorate.
    A Reuters poll showed the real is likely to strengthen in
coming months, but forecasts span an extremely wide range,
highlighting how the recent slump has heightened uncertainty
around the foreign exchange rate.
    Assurances by central bankers that the currency sell-off
will only drive monetary policy insofar as it affects inflation
and inflation expectations also seemed to have little effect on
markets, with yields on short-term interest rate futures
 soaring.
    "The central bank changed its plans and held rates at its
last meeting because of the foreign outlook and the currency, so
it's very reasonable that it could do so again for the same
reasons," a partner at a Rio de Janeiro-based asset manager
said, referring to the bank's unexpected decision to withhold
from cutting rates last month.
    Analysts told Reuters that the recent sell-off is unlikely
to contaminate long-term inflation expectations, but that could
change if the currency breached the 4.00-to-the-dollar
threshold.
    
    Key Latin American stock indexes and currencies at 1415 GMT:
 Stock indexes                                daily %    YTD %
                                     Latest    change   change
 MSCI Emerging Markets               1150.02    -0.01    -0.71
 MSCI LatAm                          2465.87    -2.03      -11
 Brazil Bovespa                     74661.96    -1.91    -2.28
 Mexico IPC                         45135.11     -0.1    -8.55
 Chile IPSA                          5493.36    -0.07    -1.28
 Chile IGPA                         27783.21    -0.05    -0.71
 Argentina MerVal                   30428.00        0     1.21
 Colombia IGBC                      12282.45    -0.12     8.02
                                                              
 Currencies                                   daily %    YTD %
                                               change   change
                                      Latest           
 Brazil real                          3.8838    -1.19   -14.69
 Mexico peso                         20.4365    -0.68    -3.61
                                                       
 Chile peso                            629.8    -0.36    -2.41
 Colombia peso                       2832.62    -0.10     5.27
 Peru sol                              3.262    -0.03    -0.77
 Argentina peso (interbank)          24.9700    -0.26   -25.51
                                                       
 Argentina peso (parallel)              25.5     1.57   -24.59
                                                       
 
 (Reporting by Bruno Federowski; additional reporting by Camila
Moreira in São Paulo; editing by Jonathan Oatis)
  
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