By Susan Mathew Dec 14 (Reuters) - Latin American currencies underperformed emerging market peers on Wednesday as investors braced for the U.S. Federa
By Susan Mathew Dec 14 (Reuters) – Latin American currencies underperformed emerging market peers on Wednesday as investors braced for the U.S. Federal Reserve’s interest rate decision, while Brazil’s real slid to two-week lows on shrinking economic activity. Brazil’s real led declines, down 0.7% after data showed economic activity contracted in October as aggressive interest-rate hikes to battle inflation took a toll on growth. Incoming Finance Minister Fernando Haddad has promised to move up the timeline on new fiscal rules, seen as crucial to sort out public finances, but has not committed to any dates. President-elect Luiz Inacio Lula da Silva, meanwhile, appointed Workers Party (PT) veteran Aloizio Mercadante to run the development bank BNDES. “The appointment of Mercadante for BNDES raises concerns that the subsided credit loans policy implemented in the past could resume,” Citigroup strategists said in a note. Peru’s sol fell 0.1%, breaking a four-day winning streak. The Supreme Court is considering the prosecution’s request for up to 18 months of preventative arrest for former President Pedro Castillo after he was charged with rebellion and conspiracy. Castillo’s arrest had sparked protests in rural mining regions, leaving at least six people dead. “The unrest is already causing economic damage, and the fallout will be even larger if protests start to impact mining activity,” said Kimberley Sperrfechter, EM economist at Capital Economics. Peru’s is the world second largest producer of copper. Peru’s new government is looking at economic stimulus measures for regions roiled by protests, but will hold steady to “non-negotiable” fiscal deficit targets, the economy minister said. If the government loosens purse strings, that could put Peru’s public finances under strain, while sustained protests could lead to shortages, which would force the central bank to stay restrictive as inflation will likely pick up, she said. Sentiment more broadly was cautious as investors awaited a likely 50-basis points rate hike from the U.S. Fed and forecasts for inflation as well as economic growth. The Fed has hiked rates by 375 basis points so far in one of its most aggressive monetary policy tightening cycles in recent times as the Russia-Ukraine war exacerbated a pandemic-induced inflation rise, risking a recession. Risky assets of emerging markets have taken a hit but investors expect EM to hold up against developed markets next year with an HSBC survey predicting a “distinct improvement” in investor sentiment, led by Latin America. Key Latin American stock indexes and currencies: Stock indexes Latest Daily % change MSCI Emerging Markets 972.82 0.78 MSCI LatAm 2035.32 -2.53 Brazil Bovespa 101916.13 -1.57 Mexico IPC 50249.15 -0.17 Chile IPSA 5202.66 -0.46 Argentina MerVal 164793.72 -0.427 Colombia COLCAP 1224.52 -0.42 Currencies Latest Daily % change Brazil real 5.3472 -0.71 Mexico peso 19.6858 -0.89 Chile peso 859.9 -0.41 Colombia peso 4772.27 -0.22 Peru sol 3.8298 -0.70 Argentina peso 172.1300 -0.19 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Arun Koyyur)
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