EMERGING MARKETS-Latam currencies slide as hawkish central banks fuel recession fears

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By Susan Mathew Dec 15, (Reuters) – Latin American currencies fell on Thursday due to hawkish rhetoric coming from major central banks. Investors are now focusing their attention on a looming Mexican central bank policy decision. As expected, the European Central Bank and Bank of England raised interest rates and warned of more hikes as they fight high inflation. This was just a day after the Federal Reserve increased its policy rate by half of a percentage point. This has fueled fears of a global economic recession. Mexico’s peso dropped 0.9%. Investors were expecting that the central bank would raise its policy interest rate by 50 basis point to 10.5%. It is following the lead of other banks and reducing the pace at which rate hikes are made as inflation slows down. Brazil’s real suffered from fiscal worries. It fell as high as 1.1% after President Jair Bolsonaro signed a decree to again exceed the constitutional spending limit in order to be able for social security expenses. Fernando Haddad, the new Finance Minister, said Wednesday that fiscal expansion wouldn’t at this point help Brazil, which is the largest economy in Latin America. Citigroup strategists stated that Haddad’s statements suggest a clearer attempt to send a message about fiscal responsibility to investors, after domestic assets have performed poorly in recent days. Brazil’s central banks raised their projections for 2022 GDP because of a methodological change that suggested a better first half result but maintained the view of a slowdown in 2023 due to its aggressive monetary tightening. Now, the central bank sees gross domestic product growing by 2.9% in 2018, up from 2.7% in September’s projection. Moody’s Rating Agency on Wednesday stated that Brazil’s changes to its State-Owned Enterprise Law could have a negative impact on public banks, as they could raise governance risks for these institutions. After a week of violent protests that left at least eight people dead, Peru’s sol dropped 0.4%. The December 7th ousting of Pedro Castillo, the former president, sparked unrest. Latam stocks were mixed. Brazil’s Bovespa jumped 1.1% after shares in state oil company Petrobras rebounded from Wednesday’s nearly 8% drop. The lower house of Congress’s vote making it easier for politicians and other state-run businesses to be elected to power on Wednesday caused the stock market to swell. The main stock indexes in Chile and Colombia fell more than 1%, reflecting the risk-off sentiment. Stock indexes of Latin America: Key Latin American currencies and stock indexes.

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