May 7, 2020 / 2:38 PM / a month ago

EMERGING MARKETS-Deeper c.bank rate cut pushes Brazil's real to new low; broader Latam rises

    By Susan Mathew
    May 7 (Reuters) - Brazil's real slumped more than 2% to new
lows on Thursday after the country's central bank made a
bigger-than-expected cut to its key rate, while most other Latin
American currencies made healthy gains against the dollar.
    Although Asian shares took little solace from a bumper
surprise move up in China's April exports, other markets
including commodities, cheered the data on hopes the world's
second-largest economy may be able to recover sooner than
expected from a pandemic-induced lockdown.
    As oil prices jumped, currencies of crude producers Mexico
 and Colombia rose almost 1%, while rallying copper
prices lifted exporter Chile's peso.
    Most regional shares rose between 0.8% and 1.7%, in line
with gains in Wall Street indexes, but Brazil's Bovespa
fell.
    Brazil's currency slid to 5.857 as the central bank
cut rates by 75 basis points, 25 basis points more than a
consensus estimate, to yet another record low of 3%. The bank
also previewed more action as it battles the economic damage
wrought by the novel coronavirus pandemic.

    "In our view, the authority seems bold in their dovish
flight plan in terms of new stimuli ahead," wrote Rabobank
strategists Mauricio Une and Gabriel Santos.
    "We now see one more rate cut of 75 basis points in the next
meeting in June, with the Selic ending the year at 2.25% p.a."
    As the country registered a record daily rise in the number
of coronavirus cases - 10,503 in 24 hours - authorities flagged
the possibility of strict lockdowns in particularly hard-hit
areas. This signals further deterioration in economic indicators
as economic activity stalls.
    The currency has lost about 31% so far this year making it
one of the worst performing in the emerging market space.
    Riskier assets of emerging markets
have taken a beating this year on worries about the dent to
global economic growth caused by the virus, a couple of oil
shocks and more recently a flare- up in U.S.-China tensions. But
hope may be around the corner, at least for some, say Deutsche
Bank analysts.
    "While developed markets have been hit especially hard, we
see many emerging markets faring better overall, at least in
terms of economic performance," they said, citing the success of
some Asian countries in containing the virus.
    "In EM cases where timing, commitment, and resources have
been lacking, the virus has spread further, and acceptance of a
higher casualty rate may have been the price paid for efforts to
limit the negative economic fallout. The severity of the
inherent risks in this strategy have yet to be determined."
        
    Key Latin American stock indexes and currencies at 1414 GMT:
  Stock indexes           Latest   Daily %
                                   change
 MSCI Emerging Markets     896.96    -0.19
                                   
 MSCI LatAm               1572.75    -1.67
                                   
 Brazil Bovespa          78667.11     -0.5
                                   
 Mexico IPC              37257.51     0.73
                                   
 Chile IPSA               4029.85     1.64
                                   
 Argentina MerVal            0.00        0
                                   
 Colombia COLCAP          1101.94     1.06
                                   
                                          
      Currencies          Latest   Daily %
                                   change
 Brazil real               5.8610    -2.74
                                   
 Mexico peso              24.1420     0.87
                                   
 Chile peso                 838.2     0.12
                                   
 Colombia peso            3926.72     0.70
                                   
 Peru sol                  3.4078     0.11
                                   
 Argentina peso           67.1800    -0.12
 (interbank)                       
                                   
 
 (Reporting by Susan Mathew in Bengaluru; Editing by Andrea
Ricci)
  
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