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EMERGING MARKETS-Latin American stocks, FX hold gains after Fed policy decision; Colombia peso up after rate cut

Jan 31 (Reuters) - Most Latin American stocks and currencies edged higher on Wednesday after the U.S. Federal Reserve said it needed more confidence that inflation was falling to its 2% target before it could cut interest rates, while Colombia's peso rose after its central bank cut rates by 25 basis points.

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  • Markets await interest rate decisions in Brazil and Chile
  • Fed holds rates steady, drops reference to future hikes
  • Colombia cuts benchmark interest rate to 12.75% * Brazil’s jobless rate drops to 7.4%
  • Latin American stocks, currencies track monthly declines (Updated at 3 p.m. EST/2000 GMT) By Amruta Khandekar and Lisa Pauline Mattackal

MSCI’s index for Latin American currencies was up 0.3% by 3 p.m. EST (2000 GMT), while regional stocks rose 0.8%, ticking higher after the U.S. central bank held interest rates steady, as expected, but dropped a longstanding reference to possible further hikes in its policy statement. The Fed’s policy decision pushed traders to trim bets that the central bank would start cutting rates in March.

Most Latin American currencies saw choppy trading against the dollar after the Fed’s decision, as investors weighed the prospect of less divergence between U.S. borrowing costs and those in emerging markets.

“The reaction to the initial statement was what you would expect, it struck a note of divergence with the Fed and emerging market central banks,” said Juan Perez, director of trading at Monex USA.

The Colombian peso gained 0.4%, shrugging off earlier losses after the country’s central bank cut its benchmark interest rate by 25 basis points to 12.75%, despite some predictions for a 50-basis-point reduction. Colombian stocks rose 0.3%. Central banks in Brazil and Chile are scheduled to announce monetary policy decisions later on Wednesday. Analysts are expecting a rate cut of 50 basis points in Brazil and a cut of 100 basis points in Chile. Stocks and currencies in the resource-rich region were set to post declines for January, down 4.5% and 1.1%, respectively, as investors scaled back bets of U.S. rate cuts and as China’s prolonged economic woes deal a blow to commodity prices.

“What January has represented is a mixed bag, no one knows for certain the timeline on when interest rate cuts could be appropriate,” Perez said, adding that the Fed’s policy statement was a “wink” to risk markets.

The Brazilian real slipped to 4.9466 against the dollar. Data showed Latin America’s largest economy ended 2023 with its lowest jobless rate in almost nine years. The Bovespa equities index gained 1.4% on a boost from financial and utility stocks. Lender Santander Brasil fell 1.9% after missing fourth-quarter net income forecasts. The Mexican peso slipped 0.3% as the crude exporter’s currency was hurt by lower oil prices. Chile’s peso edged up 0.1%.

Argentina’s Merval was the only major regional stock index in the red, losing 1.2% as the government raced to secure votes in Congress for its key ” omnibus ” reform bill. Key Latin American stock indexes and currencies at 20 GMT:

 

Reporting by Amruta Khandekar; Editing by Kirsten Donovan and Paul Simao)

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