August 3 (Reuters) - A slide in Brazil's real dragged the Latin American currencies index to a three-week low on Thursday, as a wider-than-expected interest rate cut took traders by surprise, while the Czech Republic's crown touched its lowest level this year following a policy decision.
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- Brazil cuts rate by 50 bps
- Colombia’s cuts 2023 forecasts for inflation, growth
- Czech Republic keeps rates steady, ends FX interventions
The MSCI index for Latam currencies dropped 1.6%, with the real shedding 1.7% and touching 4.89-per-dollar intraday, a three-week low. Brazil’s central bank kicked off its rate-easing cycle with a 50-basis-point cut, signaling more of the same going ahead due to an improving inflation outlook. The country’s interest rate futures also fell across the board.
Commerzbank’s FX analyst Esther Reichelt, however, believes a policy re-evaluation may be under way if the disinflationary process in Brazil isn’t as fast as expected. Despite the 50-bps cut, Brazil still has one of the most attractive real interest rates, which should continue to lend support to the real, Reichelt added.
As this follows the latest policy easing in Chile and Hungary, Deutsche Bank’s macro strategist Sameer Goel expects the rest of Latam and Central and eastern Europe to join in by the fourth quarter, followed by parts of Asia and other EMs in the firs t half of 2024. Meanwhile, the Mexican peso remained under pressure, falling for the fourth day and already losing 4% this week, touching a near two-month low of 17.43 per dollar during the day.
Juan Perez, director of trading at Monex USA, believes the peso could cool down slightly, but its economic momentum merits the appreciation it has held for the year.
“Mexico has come out of the pandemic world far better off than most other nations and is enjoying a very fruitful relationship in terms of trade with the U.S.”
Colombia’s central bank on Wednesday lowered its 2023 inflation outlook to 9% from 9.5% and cut its growth forecast to 0.9%. The peso was down 1.6%. Among other currencies, Chile’s peso and Peru’s sol also lost 0.9% and 1.3%, respectively.
Elsewhere, the crown lost over 1% to 24.26 against the euro before paring some losses after the Czech Republic’s central bank kept rates unchanged as expected and formally ended an exchange rate intervention regime to support the crown. “The CNB is trying to ease the pressure on the crown by announcing the resumption of the program of selling proceeds from FX reserves,” ING’s EMEA FX & Fixed Income Strategist Frantisek Taborsky noted. “This time, it may be more given that the board has long criticized the size of the balance sheet as a legacy of the previous board.”
