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EMERGING MARKETS-Mexican peso strengthens as c.bank keeps rate on hold

PUBLISHED: Thu, 25 Mar 2021 19:41:15 GMT

* Mexican peso climbs as Banxico stands pat on rates * EM currencies under pressure from strong dollar (Updates with Banxico rate decision, comment; updates prices) By Medha Singh and Susan Mathew March 25 (Reuters) – Mexico’s peso strengthened further against the dollar on Thursday after the central bank left its key rate on hold, while Latin American stocks were weighed down by worries over a resurgence in the pandemic. The peso rose 1.4% to trade at 20.65 to the dollar, on pace to snap a five-day losing streak. Most other currencies in the region were pressured by a strong dollar. Mexico’s central bank (Banxico) kept its key interest rate steady at 4.0%, saying that in a highly uncertain environment, the risks for inflation, economic activity and financial markets pose major challenges for monetary policy. “The market was pretty split going into the meeting and the fact that the decision was unanimous means we are probably now at the end of the easing cycle and the bank would hold rates at 4% going forward,” said Christian Lawrence, senior market strategist at Rabobank in New York. The bank cut rates by 25 bps to 4% in February, flagging uncertainty over the outlook. Banxico’s move followed a decision by South Africa’s central bank earlier in the day to keep its policy level unchanged, bucking the trend of emerging markets raising borrowing costs. Policy makers in Brazil, Russia and Turkey delivered cumulative rate increases 300 basis points last week. A basket of Latin American currencies and stocks have hit two-week lows as a new wave of COVID-19 sweeps through the region. Chilean health officials extended a lockdown across the capital Santiago even as the South American nation continues to plow ahead with the world’s fastest per capita vaccination campaign. Peru set a record high of daily caseloads on Thursday. Brazil’s real, one of the worst performing EM currencies year-to date, fell another 0.8%. The country’s central bank trimmed its economic growth outlook for this year to 3.6% from 3.8%, citing “above-usual uncertainty” over a recovery amid the COVID-19 pandemic. Inflation in the country rose to new multi-year highs in the month to mid-March, data showed. Meanwhile, the stocks in Latin America’s largest economy bounced off two-week lows, helped by upbeat news in the utility sector. State power utility Eletrobras was up 3.8% after the Brazilian government appointed lawyer and economist Rodrigo Limp Nascimento as CEO, to replace Wilson Ferreira, who quit in January over what he called a lack of political support in Congress for privatizing the company. Chile’s peso extended losses to a fourth day as copper prices fell. Key Latin American stock indexes and currencies: Stock indexes daily % change Latest MSCI Emerging Markets 1288.28 -0.78 MSCI LatAm 2248.66 -0.24 Brazil Bovespa 113775.55 1.53 Mexico IPC 46665.63 -0.08 Chile IPSA 4767.71 -1.54 Argentina MerVal 46978.60 -3.367 Colombia COLCAP 1320.55 -0.36 Currencies daily % change Latest Brazil real 5.6661 -0.51 Mexico peso 20.6660 1.23 Chile peso 724.9 0.36 Colombia peso 3666.1 -0.53 Peru sol 3.7338 -0.29 Argentina peso (interbank) 91.7700 -0.14 (Reporting by Medha Singh and Susan Mathew in Bengaluru; Editing by Kirsten Donovan and Sonya Hepinstall)

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