EMERGING MARKETS-Brazil’s real heads for 6-mth high on rate hike expectation

By Susan Mathew June 16 (Reuters) – The Brazilian real firmed toward the six-month highs hit recently against the dollar, supported by expectations of a 75 basis-point interest rate hike late on Wednesday and hopes for more. In a statement due just after the U.S. Federal Reserve announces the outcome of its own meeting, many expect the Brazil central bank to hint at a more aggressive tightening cycle, dropping commitment to a “partial normalization” of policy. The real firmed 0.4% against the dollar as investors expected a third consecutive hike, to 4.25%. Yields on Brazilian local debt are up some 250 basis points on average on JPMorgan’s GBI-EM index. Noting the real’s 5% appreciation since Brazil’s May rate hike, Citi analysts wrote: “We expect BRL to trade well in the aftermath of the meeting, especially if they drop the “partial normalization” guidance.” The Fed is expected to flag the start of talks about an eventual exit from easy money policies during the pandemic crisis. This could derail inflows to emerging market assets. Mexico’s peso fell for a fourth straight session, down 0.4% the day after ratings agency S&P affirmed its rating a couple of notches above junk, retaining a negative outlook. Investors remained on edge about Peru, fearing sweeping changes to mining laws in the world’s No.2 copper producer should socialist Pedro Castillo become president. The sol currency fell 0.9%, heading toward all-time lows. Average yields on Peru’s local currency bonds closed on Tuesday at 5.32%, a six-week high and up some 25 basis points so far this week on the GBI-EM index. Castillo is claiming victory in elections though rival Keiko Fujimori is fighting the result and an official winner is yet to be declared. On equity markets, miners in Brazil were the biggest drags on the Bovespa index as iron ore prices slipped. Key Latin American stock indexes and currencies at 1502 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1370.81 -0.54 MSCI LatAm 2665.44 0.59 Brazil Bovespa 129588.57 -0.39 Mexico IPC 50748.56 -0.31 Chile IPSA 4370.66 0.21 Argentina MerVal 67030.93 0.037 Colombia COLCAP 1254.04 0.14 Currencies Latest Daily % change Brazil real 5.0140 0.53 Mexico peso 20.1120 -0.53 Chile peso 727.1 -0.08 Colombia peso 3695.45 0.01 Peru sol 3.88 -0.01 Argentina peso 95.3100 -0.01 (interbank) (Reporting by Susan Mathew in Bengaluru; editing by Sujata Rao and David Gregorio)