EMERGING MARKETS-Mexican peso pares losses after rate cut; Latam FX weakens as dollar rises

Credit: REUTERS/EDGARD GARRIDO

By Ankika Biswas and Lisa Pauline Mattackal

March 21 (Reuters) - Mexico's peso recouped some of the day's losses after an expected interest rate cut on Thursday but remained down on the day, along with most regional currencies, as the dollar recovered ground.

The Bank of Mexico, or Banxico, cut benchmark interest rates by 25 basis points to 11%, the first rate cut since the bank embarked on a tightening cycle in 2021.

Banxico said it will thoroughly monitor inflationary pressures and that at its next monetary policy meetings, "it will make its decisions depending on available information."

Further pressuring emerging market currencies, the dollar index =USD recouped Wednesday's losses after Fed Chair Jerome Powell said recent high inflation readings had not altered the central bank's stance as it stayed on track for three interest rate cuts.

Juan Perez, director of trading at Monex USA, also pointed to the Swiss National Bank's unexpected rate cut that likely puts pressure on most developed economies to start easing and also on emerging markets to further loosen their monetary policy.

Brazil's real BRL= fell 0.2% to 4.9788 per dollar after its central bank cut the benchmark rate by 50 basis points on Wednesday, while flagging it may change the course of the current easing cycle after May.

"For now, we continue to expect 50 bps to be the default for rate cuts in the coming months; however, the bar to slow the pace is now lower," Wilson Ferrarezi, Brazil economist at TS Lombard said.

Colombia's rate decision is due on Friday, with a Reuters poll showing analysts expect the central bank to slash rates by twice as much as in previous months. Colombia's peso COP= lost 0.8%.

Chile's peso CLP=CL weakened over 1%.

MSCI's basket of Latin American stocks .MILA0000PUS edged down 0.1%.

Meanwhile, Turkey unexpectedly raised interest rates by 500 basis points to 50%, citing a deteriorating inflation outlook and pledged to tighten further if need be.

The lira TRYTOM=D3firmed to 31.91 per dollar - its strongest level since March 7 - after the decision, international dollar-denominated bonds extended their earlier gains, and the Istanbul stock market .XU100 climbed more than 2%.

"With local elections coming up, very few were expecting a rate rise. There has been a debate over how independent the central bank can be from politics so this move is going to reassure investors," said Cagri Kutman, Turkish market specialist at KNG Securities.

Highlights:

** Brazil holds growth forecasts at 2.2% for 2024, 2.8% for 2025

** Sri Lanka bonds jump as debt restructuring talks set for next week

Key Latin American stock indexes and currencies at 2000 GMT:

Stock indexes

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

1046.22

1.37

MSCI LatAm .MILA00000PUS

2527.12

-0.12

Brazil Bovespa .BVSP

128171.65

-0.74

Mexico IPC .MXX

56636.85

0.03

Chile IPSA .SPIPSA

6485.92

-0.24

Argentina MerVal .MERV

1225265.41

3.38

Colombia COLCAP .COLCAP

1315.17

0.49

Currencies

Latest

Daily % change

Brazil real BRBY

4.9788

-0.20

Mexico peso MXN=D2

16.7430

-0.42

Chile peso CLP=CL

972.80

-1.08

Colombia peso COP=

3900.68

-0.8

Peru sol PEN=PE

3.6725

0.15

Argentina peso (interbank) ARS=RASL

854.0000

-0.06

Argentina peso (parallel) ARSB=

1010

1.98

(Reporting by Ankika Biswas and Lisa Mattackal in Bengaluru Editing by Mark Potter and Alistair Bell)

((Ankika.Biswas@thomsonreuters.com;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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