On Tuesday, Brazil’s absolute rose 1.2 percent to lead gains in Latin American currencies, as China’s liquidity-boosting measures boosted sentiment. At the same time, the Brazilian central bank expects to raise rates again on Wednesday.
Prices in Brazil cooled in November. However, it did not deter the central bank from raising the key interest rate by 150 basis points to 9.25 percent, bringing the year’s hikes to 725 basis points.
Markets are well-priced for this outcome, but we expect the central bank of Brazil to maintain its hawkish tone. BRL is benefiting from a significant increase in yield, though not enough to make an outright bullish case or overcome Brazil’s fiscal and political challenges.
Last month, inflation rose slightly more than expected, keeping the monetary policy committee on track to deliver an aggressive monetary tightening of 125 basis points to 4.00 percent.
Several emerging market central banks have raised interest rates this year. This action was to help curb rising inflationary pressures caused by rising energy costs and supply-side issues.
Latam assets benefited from rising copper and iron ore prices. This came after the Chinese central bank decided to reduce bank reserve requirements supported metal prices to improve Chinese economic activity.
China is one of the world’s largest metal consumers. The country’s improving economic conditions suggest increased demand for Latin American commodity exports.
Colombia’s peso rose 0.6 percent as crude prices continued to grow. Moreover, concerns about the impact of the Omicron coronavirus variant on global fuel demand eased.
Ecopetrol and Petrobras, the two most significant Latin American oil companies, rose more than 1%.
CSN, a Brazilian steelmaker, rose 2% after announcing a share repurchase program of up to 30 million shares.
Colombian stocks underperformed as conglomerate Grupo Argos fell more than 5%. Furthermore, it extended losses after declining to participate in Grupo Gilinski’s public acquisition offer for food producer Nutresa.
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