March 8, 2013 / 4:55 PM / 7 years ago

CORRECTED-EMERGING MARKETS-Mexico peso rallies despite rate cut

(Corrects 3rd paragraph to show Mexico cut rate to 4.0 pct, not
to 4.5 pct)
    * Mexico cuts rates by 50 bps, says not starting
easing cycle
    * Bets Brazil will hike rates increase after inflation data
    * Mexico peso rallies 0.7 pct, Brazil real gains 0.6 pct

    By Walter Brandimarte
    RIO DE JANEIRO, March 8 (Reuters) - Mexico's peso rallied on
Friday even after policymakers cut interest rates for the first
time in nearly four years, while the Brazilian real gained on
bets that higher-than-forecast inflation would force the central
bank to tighten monetary policy.
    The level of domestic interest rates usually has a direct
impact on market appetite for local assets. But in the case of
Mexico, investors focused on improving prospects for the economy
following the central bank's decision to make an one-off cut of
50 basis points in benchmark borrowing costs.
    In a decision unforeseen by most economists, the Banco de
Mexico brought its base interest rate to a record low of 4.0
percent, a move that analysts expect to bolster Latin America's
second-largest economy. 
    The bank added that the move was not the beginning of a
monetary easing cycle, which limited the potential depreciation
of the peso, noted Enrique Alvarez, head of Latin America
strategy at IDEAglobal in New York.
    "The market will see that as a signal that they're trying to
get ahead of the curve in terms of (supporting) growth," said
Alvarez. "I don't think there will be a lot of depreciation in
the peso notwithstanding the rate cut."
    The Mexican peso added to gains after the central
bank decision and last traded at 12.673 per dollar, 0.7 percent
stronger than Thursday's close.
    The real  rose 0.6 percent to 1.9489 per dollar
after reaching its strongest intraday level since May, 2012. 
    Some analysts fear the central bank could intervene to curb
currency gains after the real crossed the 1.95-per-dollar mark
that many analysts considered the boundary of an informal
trading range imposed by the central bank.
    Gains in Brazil's currency followed data showing consumer
prices jumped more than expected in February despite a
government-sponsored cut in electricity rates. The data added to
prospects of higher interest rates in the next few months.
    Banks such as JPMorgan recommended investors stay long the
Brazilian currency, betting that further gains would be spurred
by a hike in the base Selic rate and by inflows coming from
external funding sources for Brazil's medium-term infrastructure
    Other Latin American currencies were little changed as data
showing U.S. employers stepped up hiring in February fueled
speculation that the Federal Reserve may tone down its
ultra-loose monetary policy, potentially reducing dollar inflows
to emerging markets. 
    Latin American FX prices at 1630 GMT:    
 Currencies                           Daily  YTD pct
                                        pct   change
                            Latest   change  
 Brazil real                1.9489     0.57     4.67
 Mexico peso               12.6730     0.70     1.51
 Chile peso               471.4000     0.08     1.55
 Colombia peso           1801.6500     0.05    -1.98
 Peru sol                   2.6020    -0.04    -1.96
 Argentina peso             5.0650     0.00    -3.01
 Argentina peso             7.8000     0.26   -13.08
 (Editing by Dan Grebler)
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