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Colombian peso slips ahead of interest rate decision

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Colombia’s peso fell on Friday as

investors cautiously awaited an interest rate decision by the

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country’s central bank, while Latin American currencies were on

track to end their second week lower as fears of a recession

weighed on risk appetite.

However, a 0.6% jump in the Brazilian real,

the only outlier among Latam currencies, boosted the MSCI’s

index for regional currencies by 0.5% on Friday.

The previous day saw the European Central Bank and the Bank

of England join the U.S. Federal Reserve in pledging more rate

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hikes ahead, spurring concerns of a global economic downturn and

weighing on appetite for risky assets such as emerging market

(EM) currencies.

Colombia’s peso fell for the third straight session,

down 0.2% ahead of an interest rate decision from the central

bank of Latin America’s fourth-largest economy.

Majority of the analysts in a Reuters poll earlier this week

said they expected the central bank to raise its benchmark

interest rate by 100 basis points to 12% this month, given

persistent inflation.

Mexico’s peso was down 0.3%, a day after its central

bank raised its key interest rate by an expected 50 basis points

and signaled another hike soon.

“While the relationship between the Fed and Banxico is not a

mechanical one, we believe the policy decisions of the former

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will continue to have an influence on the latter,” wrote Wilson

Ferrarezi, economist at TS Lombard in a research note.

“Thus, if the Fed hikes by 50bps in February, the

likelihood of a rate hike of the same magnitude by Banxico will

be considerably higher.”

Ferrarezi also added Mexico’s inflation outlook remains

challenging and inflationary pressures are likely to persist

into 2023.

The Peruvian sol fell 0.6%.

Meanwhile, the Brazilian real recovered after

ending lower in the previous session on fiscal worries triggered

by outgoing President Jair Bolsonaro signing an executive decree

to once again breach the constitutional spending cap.

Broader EM currencies were down 0.1%, while

stocks were last down 0.3%, paring some losses after

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touching an over two-week low earlier in the session.

In the week to Wednesday, emerging market debt funds saw

inflows of nearly $1 billion, the largest since April 2022,

while developing market equities suffered outflows of $1.6

billion in a second straight week of losses, according to BofA.

The Russian rouble was last down 0.4% against

the dollar after Russia’s central bank held its key interest

rate at 7.5% at its final meeting of the year but slightly

shifted its rhetoric towards growing inflation risks.

Key Latin American stock indexes and currencies

Stock indexes Latest Daily % change

MSCI Emerging Markets 957.26 -0.31

MSCI LatAm 2039.79 -0.18

Brazil Bovespa 102835.36 -0.87

Mexico IPC 49189.32 -0.31

Chile IPSA 5126.69 -0.12

Argentina MerVal 164713.37 -0.012

Colombia COLCAP 1222.50 0

Currencies Latest Daily % change

Brazil real 5.2808 0.62

Mexico peso 19.8016 -0.27

Chile peso 886.9 -1.24

Colombia peso 4798.9 -0.16

Peru sol 3.8419 -0.63

Argentina peso 172.7200 -0.17

(interbank)

Argentina peso 316 1.27

(parallel)

(Reporting by Amruta Khandekar; Editing by Shinjini Ganguli)

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