NEW YORK, Oct 27 (Reuters) - Brazil's real spearheaded the gains among its Latin American peers on Thursday, after its central bank said it would maintain tight monetary policy till inflation came within sight of its target.
The real snapped a three-session losing streak and gained nearly 1.6% after the central bank held the key interest rate steady at 13.75%, keeping it unchanged for a second month in row as it paused its aggressive tightening cycle after 12 consecutive increases that lifted rates from a 2.0% record low in March 2021.
Brazil heads into what is turning out to be a close presidential election run-off between leftist former President and front-runner Luiz Inacio Lula da Silva and far-right incumbent Jair Bolsonaro on Sunday, with the former maintaining his lead. The real is among the best performing emerging market currencies this year, up over 5%. Analysts at UBS Global Wealth Management maintained a constructive view on the Brazilian real on the back of a super-orthodox central bank and external accounts in good health.
Further, Brazil’s Bovespa index snapped a three-day losing streak and advanced 1.3% with financial agents making the last adjustments with an eye on the second round of the election on Sunday, while analyzing a slew of corporate results. The wealth manager sees Brazilian equities retaining their outperformance against other emerging market peers, driven by high commodity prices, relatively low vulnerability to tighter global liquidity, attractive valuations and superior dividend yields.
Brazil’s central government posted a better-than-expected primary budget surplus in September , Treasury data showed, boosted by dividends from the state-owned oil company Petrobras, which saw its shares rise 0.8%, and higher tax revenues. Other emerging market currencies rose against the dollar, with Mexico’s peso rising 0.5% and Colombia’s peso jumping 1.3% to a one-week high.
With rising recession fears, investors tend to prefer currencies that have something physical to hold on to, which makes Latin American currencies attractive as the economies have physical commodities that can sustain economic activity, trade, and food, said Juan Perez, senior currency trader at Monex USA.
Central European currencies were muted to lower after the European Central Bank raised the benchmark interest rate by 75 basis points. But the euro fell as the analysts noted the bank sounded less hawkish than expected and struck a dour tone on economic growth in the euro area.
Argentina’s peso slipped after ratings agency Fitch on Wednesday downgraded Argentina’s long-term sovereign credit rating by a notch to ‘CCC-‘ from ‘CCC’, citing deep macroeconomic imbalances and rising risks over the country’s ability to meet future debt repayments. Egypt’s pound plunged 15% to a record low against the dollar as authorities announced a $3 billion International Monetary Fund deal with a commitment to a “durably flexible exchange rate regime”.
