July 31 (Reuters) - Chile's peso led losses among most Latin American currencies on Monday after it became the first major economy in the region to cut interest rates, while the Colombian peso was at a session low after its central bank held rates steady.
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- Chile cuts policy rate by 100 bps as inflation falls
- Colombia holds benchmark interest rate at 13.25%
- Mexico’s economy grows in Q2
- Massa: Argentina won’t use dollar reserves to repay IMF
The MSCI Latam currencies index was down 0.4% by 3:10 p.m. EDT (1910 GMT). However, it was poised for monthly gains of 2.8% as the dollar was set to end July with declines, pressured by bets the 25-basis-point rate hike delivered by the Federal Reserve last week was likely the final one of the current tightening cycle. Chile’s peso dropped 1.1% to touch nearly a seven-month low. On Friday, the South American country’s central bank cut rates by 100 basis points as it responded to a faster-than-expected slowdown in inflation. The Chilean central bank “will continue to cut at same 100-bp pace over coming meetings, with rates ending this year at 7.25%,” said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics. Colombia’s peso lost 0.2% after the country’s central bank unanimously held its rate stable for the second month in a row, with inflation having slowed but still above the central bank’s 3% long-term target.
“(The Colombian peso) naturally dropped because there is a sense that the tightening cycle may be over after having reached the highest interest rates since 1999,” said Juan Perez, director of trading at Monex USA.
“While the Colombian central bank may not be able to keep up with the Fed’s ongoing willingness to increase borrowing costs, this may not be a sign of cuts to come unless a very serious downward spiral takes place economically.”
The Brazilian real traded flat on Monday as attention turns to a monetary policy decision due this week. Brazilian Finance Minister Fernando Haddad last week said there is plenty of room for a “reasonable” rate cut.
The executive board of the International Monetary Fund (IMF) said on Monday that Brazil’s current monetary stance is “appropriate” and called for a continued forward-looking and data-dependent monetary policy.
A weekly central bank poll showed Brazil’s private sector economists forecast the central bank’s benchmark rate would end 2024 at 9.25%, pointing to a deeper monetary easing than previously expected. Data showed Mexico’s economy expanded during the second quarter, although at a slower pace than in the first quarter. The peso lost 0.3%. Meanwhile, Argentina’s Economy Minister Sergio Massa, a candidate in October’s presidential election, said the country will not use “a single dollar” of its own reserves towards a $2.7 billion repayment to the IMF due this week. The MSCI gauge for Latam stocks gained 0.3%, boosted by Brazilian and Chilean equities, which were also on track for monthly gains. Among stocks, Petrobras added 4.3% after the Brazilian state-owned oil company disclosed its new dividend policy.
