LATAM WEEKAHEAD-Brazil, Mexico to shed light on rates policy

Sun Jul 26, 2009 12:26pm EDT
By Walter Brandimarte
NEW YORK, July 26 (Reuters) - Brazil and Mexico this week are expected to shed some light on how long their interest rates will remain at current historic lows.
Mexico on Wednesday will release its third-quarter inflation report that will show a more benign economic picture but still sticky short-term inflation, RBC Capital Markets' analysts said in a research note.
The report "should confirm a 'pause scenario' (for interest rates) through year-end," RBC said.
Mexico on July 17 cut its base interest rate by a quarter percentage point to 4.5 percent, its lowest since 2003, and signaled it was done easing monetary policy for the foreseeable future.
The Brazilian central bank on Thursday will release the minutes of its latest monetary policy meeting, when it cut the country's base interest rate by half a percentage point to an all-time low of 8.75 percent.
Although some economists believe the central bank will leave the door open to another rate cut, many expect the bank to pause now and signal rates will remain at current levels for a long period of time.
Supporting that view was Friday's release of Brazil's mid-month IPCA inflation data. The index rose a less-than-expected 0.22 percent in the month-long period through mid-July, slowing from a 0.38 percent gain in the month to mid-June.
Yields paid on Brazil's interest-rate futures fell, reflecting bets the central bank will keep rates low for a longer time.
"The idea of prolonged pauses seems quite popular amongst central bankers in the Western Hemisphere," Barclays Capital's economists Guillermo Mondino and Andrea Kiguel wrote in a research note.
"Central banks would rather stop here and keep interest rates lower for quite some time, rather than risk a premature need to hike," they added.