EMERGING MARKETS-Brazil rate yields slump on credit clampdown

* Brazil’s central bank raises reserve requirements

* Mexican peso dips 0.2 pct after weak U.S. jobs data

* Chilean peso and Brazilian real stronger on weak dollar

(Adds comments about Brazilian real and weekly move,
updates prices)

By Samantha Pearson and Silvio Cascione

SAO PAULO, Dec 3 (BestGrowthStock) – Yields on Brazilian interest
rate futures plummeted on Friday as traders were forced to
ditch bets on a rate hike next week after the central bank
announced alternative measures to curb inflation.

Brazil raised bank reserve requirements to 20 percent from
15 percent, looking to slow rampant credit growth that has been
inflating prices in Latin America’s biggest economy. For
details, see [ID:nN03188472] and [ID:nN03289679].

The measure takes some of the pressure off policymakers to
raise Brazil’s already high interest rate — something the
country’s incoming government is reluctant to do for fear of
attracting even more speculative ‘hot money’ from abroad.

The announcement was largely welcomed by economists but it
caused havoc among traders, who until last night had been
confidently pricing in a 25 basis point rate hike at the
central bank’s meeting next week.

They immediately ditched those bets, bidding down yields on
short-dated interest rate futures contracts.

“Dilma sent a message: interest rates are not going up,”
said one trader at a brokerage in Sao Paulo, referring to
President-elect Dilma Rousseff.

The yield on the contract due January 2011 (DIJF1cc: ), one
of the most heavily traded contracts of the session, sank as
low as 10.681 percent from 10.839 percent.

The market now is not pricing in any interest rate
increases until January, when the current consensus among
traders is for a hike of 50 basis points.

CURRENCY MARKETS FOCUS ON JOBS

Brazil’s currency underperformed the region in early
trading but showed little immediate reaction to the central
bank’s announcement.

The main focus in the region’s foreign exchange market (Read more about international currency trading. )s on
Friday was the non-farm payrolls report from the United
States.

“On the macroeconomic level, it’s obvious that everything
is correlated. But today, to imagine that the currency’s moves
are directly linked to the measures, I think it’s forcing it a
bit,” said Jorge Knauer, head of foreign exchange at Banco
Prosper in Rio de Janeiro.

“I think it’s a standard move, shifting according to the
market abroad.”

Data on Friday showed the U.S. unemployment rate jumped to
a seven-month high but the dollar’s drop that ensued produced a
mixed reaction among the region’s currencies. [ID:nN02238002]

The Brazilian real (BRBY: ) was bid 0.89 percent stronger at
1.686 reais per U.S. dollar, as the greenback fell sharply in
the wake of the jobs report. It was set for a weekly gain of
about 2.4 percent — its biggest since June.

Others believe the central bank’s move could actually boost
the real in the long-term by reducing the threat of
intervention in the market.

“Some in the market are speculating that the heightened
need for monetary tightening may lead Brazil policy-makers to
accept more currency strength as a way of taming price
pressures,” Win Thin, senior currency strategist at Brown
Brothers Harriman in New York, said in a research note.

But the Mexican currency (MXN=: ) weakened 0.2 percent to
12.3516 per dollar. Mexico is more vulnerable to changes in the
economic outlook of the United States, which buys roughly 80
percent of its exports.

However, analysts are still optimistic about the peso’s
performance over coming months as the country recovers from a
deep recession.

BNP Paribas resumed its call for a stronger Mexican peso
against the U.S. dollar, targeting 12.15 and advising a
stop-loss at 12.51. [ID:nN0382717]

The Chilean peso (CLP=: ) firmed 0.84 percent to 479.9 per
dollar as the price of copper, the country’s main export, edged
higher thanks to the weak dollar.

The Colombian peso (COP=: ) jumped 0.84 percent to 1891 per
dollar.

(Editing by Chizu Nomiyama)

EMERGING MARKETS-Brazil rate yields slump on credit clampdown