July 1, 2016 / 3:35 PM / 3 years ago

EMERGING MARKETS-Brazil real slides as central bank acts to stem rally

By Bruno Federowski
    SAO PAULO, July 1 (Reuters) - The Brazilian real weakened on
Friday as the central bank stepped in to stem a rally in the
currency, underperforming its regional peers after Mexico's
central bank aggressively raised its key interest rate.
    Brazil's real declined 0.9 percent after posting its
biggest monthly gain in 13 years in June, supported by a rebound
in global investor sentiment.
    Questions over new central bank chief Ilan Goldfajn's
tolerance of a stronger currency grew, as optimism over economic
prospects under interim President Michel Temer drove the real to
its strongest levels in a year.
    The central bank reacted by selling $500 million in reverse
currency swaps on Friday, which correspond to future dollar
purchases. The bank had refrained from intervening since
Goldfajn took charge last month.
    Previous central bank chief Alexandre Tombini had used
reverse currency swaps to sharply reduce the central bank's
exposure to currency movements. Many traders believed he also
meant to shield exports from further strength in the real.
    In an interview with local news agency Valor PRO on Friday,
Goldfajn said he saw a window of opportunity to reduce the
central bank's exposure and will continue doing so as long as it
remains open, slamming the real to its session lows, traders
    "It does not look like they have a specific level for the
currency in mind ... It seems the central bank means to reduce
its FX exposure as well as limit excesses in currency markets,"
H.Commcor analysts wrote in a client note.
    In Brazil's stock markets, shares of Kroton Educacional SA
 and Estácio Participações SA rose after
Estácio accepted an improved takeover bid from Kroton.
    The country's benchmark stock index rose 1 percent,
but gains were limited by a drop in shares of JBS SA 
following erroneous media reports that Brazilian police had
raided the offices of world's largest meatpacker.
    Eldorado Celulose, which is also controlled by the
billionaire Batista family, later said it was the target of the
police raids - in the latest stage of the country's biggest-ever
corruption investigation. 
    Mexico's peso  was nearly flat after the
country's central bank raised its key interest rate more than
expected on Thursday to calm concerns that currency weakness
could boost inflation. 
    The peso strengthened 1.1 percent on Thursday following the
central bank's decision. 
    Key Latin American stock indexes and currencies at 1500 GMT:
 Stock indexes                                daily %    YTD %
                                               change   change
 MSCI Emerging Markets                838.69     0.55     5.03
 MSCI LatAm                          2278.85     0.42    24.02
 Brazil Bovespa                     52080.98     1.08    20.14
 Mexico IPC                         46129.70     0.36     7.33
 Chile IPSA                          4017.02     0.53     9.15
 Chile IGPA                         19816.07     0.46     9.17
 Argentina MerVal                   14995.53     2.12    28.44
 Colombia IGBC                       9782.11      0.2    14.45
 Venezuela IBC                      12579.57    -2.11   -13.77
 Currencies                                   daily %    YTD %
                                               change   change
 Brazil real                          3.2412    -0.88    21.78
 Mexico peso                         18.2900    -0.08    -5.80
 Chile peso                            659.9     0.47     7.55
 Colombia peso                       2918.97     0.01     8.58
 Peru sol                              3.287    -0.12     3.86
 Argentina peso (interbank)          15.1100    -0.40   -14.08
 Argentina peso (parallel)             14.97    -0.20    -4.68

 (Reporting by Bruno Federowski; Editing by Tom Brown)
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