NEW YORK, June 30 (Reuters) - Brazil's real slumped 1% on Thursday, leading declines across Latin American peers as risk appetite took a hit at the end of a turbulent first half, while Colombia's peso slipped ahead of what could be the highest single interest rate hike in 24 years.
Worries about the fallout from an ongoing conflict between Russia and Ukraine, and surging inflation causing aggressive central bank moves, have kept investors jittery so far this year. With a recession across major markets becoming more probable as central banks stay hawkish, risk assets may be in for more pain.
MSCI’s index of emerging market stocks .MSCIEF is down about 18% since the beginning of the year, its worst first half since at least 2008. Its currencies counterpart’s 4% slide is its worst since the first six months of a pandemic ravaged 2020 .MIEM00000CUS.
In Latam, Brazilian presidential elections in October are seen as a significant source of volatility, especially as current far-right President Jair Bolsonaro trails in polls.
The Brazilian government’s spending cap was raised to accommodate stimulus during the COVID-19 pandemic, but worries remain as Bolsonaro tries to win back support. Brazil’s Senate is set to vote on Bolsonaro’s pre-election spending package on Thursday.
Meanwhile, Brazil’s central bank expects 12-month inflation to decelerate to 11.31% in August from 11.73% in May, in line with its expectation that inflation will have peaked.
“At the moment, the narrative is the Brazilians themselves don’t see a lot of inflationary pressures… then the dollar is not necessarily guaranteed to have a long term positivity against the real,” said Juan Perez, senior currency trader at Monex USA.
The real BRBY was on course for a near 10% quarterly slide, compared with a 1.4% slide in the Mexican peso MXN=.
Crude producer Colombia’s peso COP= lost 0.6% on Thursday ahead of a central bank decision later in the day. The bank is seen hiking by 150 basis points to 7.50%.
Colombia’s leftist President-elect Gustavo Petro picked Jose Antonio Ocampo to be finance minister in his government. Ocampo has a PhD in Economics from Yale and has previously served in the same position.
“It may be a positive thing for the for the country that Petro is choosing a very mixed cabinet. So that in long term will help the Colombian peso,” said Monex’s Perez.
The recent fall in commodity prices as well as protests in Chile and Peru hurting copper production saw currencies of the world’s top exporters of the red metal have taken a hit.
The Chilean peso CLP= is on course for its worst quarter since the second quarter of 2008, down 16%. MET/L