Brazil's real gains as bets rise for large rate hike

Brazil's real rose on growing bets that the country's central bank would announce a larger-than-expected interest rate hike on Wednesday, while Peru's sol underperformed as mine protests spread in the world's second-largest copper producer.

Most other Latin American currencies were flat to higher as the dollar weakened ahead of the Federal Reserve's policy meeting next week. Mexico's peso rose 0.3%, while Chile's currency attempted to extend gains to a fourth straight session.

The real gained 0.4% as rising worries about the government breaching its spending cap as well as surging inflation spurred bets that the central bank may hike its key interest rate by more than the 100 basis points expected in a Reuters poll.

"We expect (Brazil's central bank) to make a more aggressive policy rate adjustment by hiking rates by 150bps, aimed at containing inflation expectations and stabilizing BRL. There is some risk of an even more aggressive move," said Sacha Tihanyi, head of emerging markets strategy at TD Securities.

Brazil's real slips on concerns about economic growth

"The risk to BRL is skewed to the downside. We believe that a 150bp rate hike, with a commitment of another equivalent hike at the December meeting, will be required to bolster BRL."

But market experts have warned that the aggressive pace of hikes - 425 basis points already so far this year - could squeeze growth in Latin America's largest economy.

Brazilian President Jair Bolsonaro continues to face political headwinds ahead of elections next year. A Brazilian Senate investigative committee approved a report on Tuesday calling for the far-right president to be indicted for crimes related to his handling of the coronavirus pandemic.

Peru's sol fell 0.3% as protests at copper mines spooked investors about production of the Andean nation's main export - copper.

In the latest in a string of protests against mining companies, Peru's Antamina copper and zinc mine, which is part-owned by Glencore and BHP Billiton, said on Tuesday that protesters had blocked a road it uses, demanding that it honor its commitments to the local area.

Among stocks, Brazil's Bovespa index outperformed with a 1.6% rise. Banks led gains, with Banco Inter jumping 6.7% as the SoftBank-backed digital lender reported a strong increase in quarterly profit. It had reported a loss in the same period last year.

Petrobras inched higher as the government reiterated that the privatization of the state-run oil company is being considered - a move seen as highly unlikely by analysts.