Latam FX rise, Colombian central hikes rates

Dec 17 (Reuters) – Colombia’s peso jumped more than 1% leading up to the central bank meeting on Friday when the bank hiked the benchmark interest rate, as expected, while most other Latin American currencies erased losses.

Colombia’s central bank hiked its benchmark rate by 50 basis points to 3%, and raised inflation forecasts for this year and next. It said it will continue to take steps to ensure inflation converges to target.

The peso posted its best session in 3-1/2 months, cutting weekly losses to 1.9%. The currency had seen steep losses this week after the government raised the minimum wage, ramping up fears of overheated inflation.

Colombia’s government reduced its fiscal deficit target for 2021, citing a larger tax collection following an improvement in economic growth.

Mexico and Chile had both hiked interest rates earlier this week in response to rising inflation, which has been a recurring trend across most emerging markets this year as more economies reemerge from COVID-19-related lockdowns.

Chile’s peso erased losses of as much as 0.5% to rise 0.7% ahead of the country’s hotly contested presidential runoff election on Sunday. A survey showed Chile’s ultra-right presidential candidate Jose Antonio Kast and leftist Gabriel Boric appeared to be tied among likely voters. read more

The result of the election is bound to have wildly differing effects on the mining-driven economy. Areas like taxation are coming under scrutiny, as are environmental protections, which could impact copper and lithium production – the country’s top exports.

“Both candidates have moderated their stance in recent weeks suggesting that a radical shift in policymaking seems unlikely, but fiscal risks will linger regardless of who wins,” Capital Economics said in a note.

Mexico’s peso rose 0.4% to a one-month high, and was the best-performing Latin American currency this week after the central bank raised rates by a more-than-expected 50 bps. read more

Mexico still faces economic weakness due to softer consumer and investment trends amid the COVID-19 pandemic, a report from the country’s financial stability council detailed on Thursday. read more

In Argentina, the central bank was considering rate hikes as inflation soars, a source said. Meanwhile, the government said it will extend its 2021 budget after Congress rejected its new one in a blow to a new International Monetary Fund deal. read more

Peru’s sol rose 0.2% after the central bank revised up its 2021 GDP guidance, expecting it to grow by 13.2% rather than 11.9%.

Among stocks, Brazilian food processor BRF (BRFS3.SA) soared 6.4% after it proposed a capital increase, potentially raising 6.63 billion reais ($1.17 billion) which spurred bets that minority shareholder Marfrig (MRFG3.SA) could look to acquire a controlling stake in the company. read more

Marfrig was up 3.6%.

Key Latin American stock indexes and currencies:

Reporting by Ambar Warrick Editing by Paul Simao and Raissa Kasolowsky