EMERGING MARKETS-Brazil real ends at 2-month low; Mexico peso flat

Thu Mar 28, 2013 9:39pm GMT

* Dollar outflows push real to weakest level since Jan. 25
    * Other Latam currencies little changed in thin, pre-holiday
trade
    * Brazil real drops 0.5 pct, Mexico peso dips 0.1 pct

    By Natália Cacioli
    SAO PAULO, March 28 (Reuters) - The Brazilian real ended at
an over 2-month low on Thursday as dollars continued to flow out
of the country, raising the prospect of another central bank
intervention next week.
    Other Latin American currencies were little changed,
however, as trading volumes declined before a long Easter
weekend. The Mexican peso was practically unchanged at
12.3555 per dollar, while the Chilean peso edged up 0.1
percent.
    The real  lost half a percentage point to close
at 2.02 per dollar, its weakest level since January 25. 
    Unlike in other Latin American markets, trading volume was
high in Brazil as investors tried to influence the month-end
close of the Ptax - an average exchange rate calculated by the
central bank that is reference for a broad range of contracts,
including foreign loans, trade, and derivatives.
    Before the Ptax fix, traders said banks that were long
dollars were pushing the real lower to get a more favorable
exchange rate in their contracts.
    But the real added to losses even after the central bank
announced the closing Ptax rate, with traders citing continued
dollar outflows from the country.
    "Foreigners are long dollars because of global economic
issues. Brazil is not that attractive anymore and that is
keeping dollars out of the country," said Caio Sasaki, an
analyst with XP Investimentos in Sao Paulo.
    The rise in the real defied the notion that policymakers had
imposed an informal trading band of 1.95-2.0 reais per dollar in
Brazil. Analysts believed the central bank wanted the currency
to remain within that range, which is slightly stronger than it
was at the end of 2012, to avoid inflation pass-through.
    Still, some analysts believe the central bank may still
intervene in the market next week to stem currency losses - just
like it did on Wednesday by auctioning traditional currency
swaps, derivative contracts that emulate the sale of dollars in
the futures market.
    
    BRAZIL INTEREST RATES RISE
    Brazil's interest rate futures rose late on Thursday after a
central bank director sounded more hawkish when making comments
about the bank's quarterly inflation report, released early on
the day.
    Carlos Hamilton Araujo, the central bank's director of
economic policy, said policymakers may need to take more actions
to control prices as high inflation persists. 
    He paraphrased a famous quote by former British Prime
Minister Winston Churchill regarding democracy as the
least-worst form of government, saying "interest rates is the
worst form of remedy to fight inflation except all the others."
 
    His comments were seen as another attempt by the central
bank to offset recent remarks by President Dilma Rousseff, who
caused interest rates to fall sharply on Wednesday after saying
she will not support policies that try to curb inflation by
lowering economic growth. 
    "The market realigned with Araujo's speech. He sounded more
hawkish, in an attempt to offset Dilma's remarks," said Paulo
Petrasse, a partner at Leme Investimentos.
    Interest-rate contracts maturing in January 2014,
one of the most traded, rose 3 basis points to 7.77 percent.
    
    Latin American FX prices at 2055 GMT:
    
 Currencies                         daily %    YTD %
                                     change   change
                            Latest           
 Brazil real                2.0200    -0.54     0.99
                                             
 Mexico peso               12.3555    -0.08     4.12
                                             
 Chile peso               471.6000     0.13     1.51
                                             
 Colombia peso             holiday    n/a      n/a
                                             
 Peru sol                   2.5910    -0.19    -1.54
                                             
 Argentina peso             5.1200     0.00    -4.05

 Argentina peso             8.3800    -0.95   -19.09
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