EMERGING MARKETS-Brazil rate yields seesaw on policy doubts

* Brazil’s central bank fuels doubts about rate hikes

* Mexican peso gains 0.2 pct as U.S. dollar weakens

* Chilean peso flat as copper prices fall

By Samantha Pearson

SAO PAULO, Dec 16 (BestGrowthStock) – Yields on Brazilian interest
rate futures seesawed on Thursday after minutes of the central
bank’s latest policy meeting raised doubts about whether Brazil
would increase borrowing costs early next year.

Meanwhile, Latin American currencies edged higher thanks to
a broadly weaker U.S. dollar.

Although the Brazilian central bank said it expected
inflation to be above target in 2011, policymakers also said
they could use other measures to curb inflation before interest
rate hikes. For details see [ID:nN16152051].

The yield on the contract due April 2011 (DIJJ1: ), the most
heavily traded in the early session, fell as low as 10.86
percent from 10.92 percent. It later traded higher at 10.96

The bank’s decision this month to raise bank reserve
requirements — seen as an alternative way to curb inflation —
suggested policymakers are trying to avoid raising rates for as
long as possible.

Brazil’s benchmark Selic rate at 10.75 percent is already
one of the highest in the world and has become a magnet for the
type of short-term investment which has been blamed for
overvaluing the country’s currency, the real.

“It shows a central bank which is more in line with the new
government in the sense that it will only raise rates as a last
resort,” said Luciano Rostagno, chief strategist at CM Capital
Markets in Sao Paulo.

Although the market is currently divided over whether
interest rates will go up by 25 or 50 basis points at the
central bank’s next meeting in January, Rostagno is one of
several economists expecting no hikes.

“Inflation in relation to food prices should reverse; it’s
already started to reverse … this will give the central bank
some time to better assess the effect of some of these other
measures,” he added.


The region’s currencies were boosted by a broadly weaker
U.S. dollar but remained trapped in narrow ranges because of
caution over the euro zone debt crisis.

Problems with the region’s sovereign debt have become
systemic and require further action, European Commission
President Jose Manuel Barroso will tell EU leaders at a meeting
later on Thursday. [ID:nBRU011219]

The Brazilian real was quoted 0.41 percent stronger
according to the international reference rate (BRL=: ) but bid
0.12 percent weaker at 1.701 per U.S. dollar on the local spot
market (BRBY: ), a discrepancy resulting from different closing

The Mexican peso (MXN=: ) strengthened 0.22 percent to
12.4313 per dollar but the Chilean peso (CLP=: ) was flat at
473.80 per dollar as the price of copper, the country’s main
export, fell sharply.
(Editing by James Dalgleish)

EMERGING MARKETS-Brazil rate yields seesaw on policy doubts