Brazil’s real set for 2% weekly loss on worries over c.bank independence

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Brazil’s real looked set for a 2%

weekly decline against the dollar on Friday as investors worried

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about the central bank’s independence, while most other Latin

American currencies firmed at the end of a volatile week marked

by fears of a recession.

Brazil’s real slipped 0.6% to 5.20 per dollar, having

weakened as much as 1.3% earlier in the wake of leftist

President Luiz Inacio Lula da Silva’s public criticism of the

central bank.

Brazil’s central bank will act independently, Governor

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Roberto Campos Neto said Thursday, while Institutional Relations

Minister Alexandre Padilha said Brazil’s government does not

intend to make changes to the central bank, as they attempted to

assuage markets following Lula’s comments.

Strategists at Citigroup said, “Regardless of all this

noise, we maintain the assumption that the (central bank) will

remain with formal autonomy. In addition, the discomfort with

the inflation target suggests that Lula is more prone to

tolerate higher inflation levels.

Most Latin American currencies rose even as the dollar

regained momentum against its major peers.

Mexico’s peso climbed 0.5% but was still down on the

week as it retreated from near three-year highs hit earlier in

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the week.

Data on Friday showed Mexican retail sales rose by a less-

than-expected 2.6% in November, slowing significantly from 3.8%

from October. Mexico’s economy is slowing, Bank of Mexico deputy

governor Jonathan Heath said after official data showed economic

activity shrank in November and December.

Sentiment has been mixed this week as investors try to

balance hopes of a rebound in China’s economy with evidence of

weakness in the U.S. economy and hawkish comments from Federal

Reserve policymakers.

“Upside exists for EM FX performance over the coming

quarters, particularly if the U.S. decelerates (gradually) and

if there are more palpable economic gains stemming from China’s

reopening theme,” SocGen analysts said in a note.

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“Over the near-term, however, EM FX is likely to encounter a

rather choppy trajectory. A sharp deterioration in U.S. economic

data poses the greatest near-term threat.”

Gains in Peru’s sol were more muted as thousands of

protesters in Peru descended on the capital, angered by a

mounting death toll since unrest erupted last month following

the ouster of leftist former President Pedro Castillo.

An index of Latin American stocks, while

gaining 0.5% on the day, looked set to end the week slightly

lower.

Americancas tumbled another 34% to a fresh record

low after Moody’s rating agency downgraded the Brazilian

retailer to “Ca” from “Caa3” with a negative outlook after a

court on Thursday accepted its bankruptcy protection request.

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The stock, which has shed 93% year-to-date, will be excluded

from the Bovepsa following the close of Friday’s

session.

Key Latin American stock indexes and currencies:

Latest Daily %

change

MSCI Emerging Markets 1036.99 0.88

MSCI LatAm 2277.74 0.5

Brazil Bovespa 112173.28 -0.66

Mexico IPC 53947.95 1.06

Chile IPSA 5235.97 0.54

Argentina MerVal 245459.57 4.371

Colombia COLCAP 1332.25 -0.02

Currencies Latest Daily %

change

Brazil real 5.2044 -0.56

Mexico peso 18.8730 0.54

Chile peso 817.5 0.92

Colombia peso 4590 1.62

Peru sol 3.8427 0.08

Argentina peso (interbank) 183.4400 -0.18

(Reporting by Susan Mathew in Bengaluru;

Editing by Nick Zieminski and Jonathan Oatis)