EMERGING MARKETS-Brazil's real up ahead of fiscal policy discussion, Chile's c.bank decision eyed

Susan Mathew and Bansari Mayur Kamdar
·3 min read

* Chile interest rate expected to remain at 11.25% - poll * Argentina's VP Cristina Kirchner faces corruption trial verdict * S&P affirms El Salvador's "CCC+" rating, keeps negative outlook (Updates prices, details) By Susan Mathew and Bansari Mayur Kamdar Dec 6 (Reuters) - Latin American currencies slipped on Tuesday, with all eyes on discussion of a fiscal easing bill in Brazil, while Chile's peso jumped 2% ahead of a central bank policy decision. Emerging market currencies fell 0.7% against a firm dollar, while those in Latin America slipped 0.2%. Brazil's real inched 0.2% up against the greenback. The Senate is set to start discussing a bill which would allow the newly elected administration to ease fiscal policy next year. Analysts widely expect it to be watered down, with Citi strategists expecting non-funded extra public spending of 150 billion reais ($28.63 billion) in 2023. But it could still set the debt ratio on an upwards path, William Jackson, chief emerging markets economist at Capital Economics said. "Ultimately, action will need to be taken to return the public finances to an even keel, either through renewed austerity – which would depress demand – or financial repression policies, which have distortive economic effects too," he said, adding these could result in higher inflation. Oil producer Mexico's peso slipped 0.2% tracking the weakness in crude prices on growing concerns about global demand. Chile's peso was on course for its best session in over two months with the central bank expected to keep the key interest rate on hold at 11.25% in a decision due later in the day. The bank called an end to its hiking cycle at the last meeting. "With inflation still being so high, activity holding better than expected, the country still running a wide current account deficit and the CLP remaining weak in historical terms, we see little costs of postponing the start of the easing cycle," said Citigroup strategists. On the fixed income front, hard-currency bonds issued by a number of smaller, riskier emerging markets suffered sharp declines with dollar debt issued by Pakistan, Ghana and Sri Lanka all down between 2.6-3.6 cents, Tradeweb data showed. Spreads of emerging market hard-currency debt over U.S. Treasuries rose to 456 bps after hitting a six-month trough on Monday at 451 bps. S&P Global affirmed El Salvador's sovereign credit rating at CCC+, maintaining a negative outlook. In Argentina, vice president Cristina Fernandez de Kirchner could be handed a 12-year jail sentence and be disqualified from holding public office, with judges expected to rule on Tuesday in a high-profile corruption case. Peru's President Pedro Castillo came out fighting ahead of an impeachment trial in Congress, accusing his opponents of trying to "blow up" democracy. Key Latin American stock indexes and currencies: Stock indexes Latest Daily % change MSCI Emerging Markets 972.25 -1.22 MSCI LatAm 2169.20 0.02 Brazil Bovespa 109451.54 0.05 Mexico IPC 51344.22 1.07 Chile IPSA 5238.45 -0.68 Argentina MerVal 166051.23 0.963 Colombia COLCAP 1230.99 1.09 Currencies Latest Daily % change Brazil real 5.2684 0.28 Mexico peso 19.7775 -0.26 Chile peso 878.9 1.13 Colombia peso 4828.64 0.08 Peru sol 3.8226 0.85 Argentina peso (interbank) 169.4900 -0.19 Argentina peso (parallel) 311 0.32 (Reporting by Susan Mathew and Bansari Mayur Kamdar in Bengaluru; Editing by Andrea Ricci and Angus MacSwan)

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