BUENOS AIRES: Latin American currencies rose on Friday, and were on course to log weekly gains as easing worries about the US Federal Reserve’s aggressive pace of tightening supported sentiment.
Brazil’s real jumped 1.8%, while Mexico’s peso extended gains after the country’s central bank, commonly known as Banxico, raised the key interest rate to a record 8.5% overnight, as expected. Analysts noted that the bank’s forward guidance had a slightly dovish bias.
“Banxico will continue to tighten in the coming months as core CPI carries on rising; we now expect rates at 9.75% by year-end,” said analysts st TS Lombard.
The peso has gained every day this week, putting it on course for its best week in five months, up 3%.
Riskier assets got a lift this week as softer-than-expected US inflation data saw markets scale back expectations for a third 75 basis points hike by the Fed this year at it next meeting in September.
Several emerging market central banks had already embarked on interest rate hiking cycles in an attempt to combat inflation and stay ahead of the Fed.
On Thursday, Argentina’s central bank hiked by a whopping 950 basis points to 69.5% as inflation rose to a 20-year high of 71%.
“In our view, a mix including tighter monetary policy but still-loose fiscal policy will be insufficient to create a lasting impact on sentiment and underlying macroeconomic dynamics, as the quasifiscal cost of monetary policy starts to become an additional source of uncertainty,” said Citigroup strategists.
Peru’s central bank hiked by 50 basis points to 6.5% overnight and said it expected inflation to come back down towards its 1%-3% target level by the second half of 2023.
Peru’s sol was little changed on Friday.
Stocks also rose on Monday, as Wall Street rallied, with Brazil’s Bovespa index jumping 2.2% to hit more than two-month highs.
The Brazilian government would resume negotiations with Paraguay regarding conditions for the sale of energy from the Itaipu binational hydroelectric plant, Itaipu’s Brazilian director general told Reuters.