November 15, 2018 / 10:24 PM / 25 days ago

EMERGING MARKETS-Latam FX firm as Mexico c.bank raises rates, could hike again

 (Adds quote, updates prices)
    By Aaron Saldanha
    Nov 15 (Reuters) - Latin American currencies gained on
Thursday, with Mexico's peso firming 0.9 percent as the
country's central bank made hawkish comments after an interest
rate hike and warned that the incoming government's policies
could fan inflation.
    MSCI's index of currencies in Latin America
rose 0.2 percent, while its index of regional stocks
 was little changed.
    A quarter percentage point hike in the Bank of Mexico's
overnight interbank rate to 8 percent was largely expected but
members of the bank were divided over the decision, with one of
them calling for a more hawkish 50 basis point-hike.

    Sacha Tihanyi, deputy head of emerging markets strategy at
TD Securities, said the bank's tightening was driven by both
inflation dynamics and the substantial rise in fiscal
uncertainty. He expects both factors to "keep the central bank
in hiking mode for the time being."
    The peso was supported by central bank comments that
it could hike rates again and its warning on the policies of the
incoming government of President-elect Andres Manuel Lopez
Obrador.
    The bank warned that the peso's exchange rate was affected
by the cancellation of the new Mexico City airport and concerns
about policies of the new administration.
    Lopez Obrador's administration shocked markets toward the
end of October by scrapping an already started airport project.
An advisor to Lopez Obrador said the cost of cancellation would
be around 0.7 percent of the country's gross domestic product.

    A senator's proposal last week to cap and eliminate certain
banking commissions, apparently contradicting Lopez Obrador's
policy, has battered investor sentiment. Mexican stocks
fell 2.1 percent on Thursday, down for a fourth straight
session.
    The central bank said on Thursday it would take any
necessary action to ensure inflation falls back toward its
target range of 3.0 percent, plus or minus 1 percentage point.
The annual inflation rate was 4.9 percent in October.   
    On a day when Brazil's real and the Bovespa stock
index did not trade due to a holiday, economist Roberto
Campos Neto accepted an invite to be the Brazilian central
bank's next chief.
    Mansueto Almeida will remain treasury secretary of Latin
America's largest economy under President-elect Jair Bolsonaro,
who starts his term in January.
    Argentina's peso declined 0.4 percent. Data showed
consumer prices in the inflation-troubled country rose 5.4
percent in October.
    Inflation is expected to top 47 percent by the end of the
year, according to the central bank's latest poll.
    Local stocks shot up 3.8 percent. Energy firm YPF
Sociedad Anonima gained 4.4 percent.

    
    Key Latin American stock indexes and currencies at 2157 GMT
    
 Stock indexes                           daily %     YTD %
                             Latest       change    change
 MSCI Emerging Markets          980.85      1.31    -15.33
                                                  
 MSCI LatAm                    2583.29      0.02     -8.66
                                                  
 Mexico IPC                   41450.65     -2.11    -16.01
                                                  
 Chile IPSA                    5175.96      0.78      0.78
                                                  
 Argentina MerVal             30473.82      3.75      1.36
                                                  
 Colombia IGBC                12326.61      1.35      8.41
                                                  
                                                          
 Currencies                              daily %     YTD %
                                          change    change
                                Latest            
 Mexico peso                   20.2308      0.86     -2.63
                                                  
 Chile peso                      676.1      0.00     -9.09
                                                  
 Colombia peso                 3187.75      0.45     -6.45
 Peru sol                        3.382      0.00     -4.29
                                                  
 Argentina peso                36.0400     -0.25    -48.39
 (interbank)                                      
                                                  
 


 (Reporting by Aaron Saldanha in Bengaluru, Additional reporting
by Sheky Espejo and Miguel Angel Gutierrez in Mexico City;
Editing by Richard Chang)
  
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