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EMERGING MARKETS-Chile's peso falls after referendum; Latam FX hit by strong dollar

Shreyashi Sanyal
·3-min read

By Shreyashi Sanyal Oct 26 (Reuters) - Chile's peso fell on Monday as uncertainty grew following a landmark vote to replace the country's constitution with a new charter drafted by its citizens, while other major Latin American currencies slipped against a firmer U.S. dollar. Millions of Chileans voters gave a ringing endorsement to a plan to tear up the country's Pinochet-era constitution on Sunday night after large and violent social protests last year sparked demand for a new charter. The Chilean peso snapped a six-day winning streak to fall 0.6%, as analysts feared the rewriting of the constitution may cause the central bank to adopt a more dovish stance in the medium term. "The road ahead is full of uncertainties and rewriting the constitution will be a complex process," said Nikhil Sanghani, Latin America economist at Capital Economics. Sanghani noted the state looked set to play a bigger role in the economy, which while reducing savings and income inequality may help boost aggregate demand, could lead to a misallocation of resources and weaker fiscal discipline. Other currencies in Latin America were hurt by a rise in the safe-haven dollar after coronavirus cases surged in Europe and the United States, while investors awaited central bank decisions from major economies in the region through the week. Brazil's real weakened 0.1%, with focus on a central bank policy meeting later this week. The bank is widely expected to keep the Selic rate on hold at a record low 2.00%. A central bank survey showed Brazil's 2020 inflation outlook rose to 3%, the 11th week in a row it has risen as a recent spike in food prices continues to intensify short-term inflation pressures. The Mexican peso slipped 0.4% as data showed Mexico's economy grew more slowly than expected in August from July as a recovery from the coronavirus pandemic lost steam. Colombia's peso mirrored a fall in oil prices, while local investors awaited a central bank policy meeting on Friday. A Reuters poll of analysts said Colombia's central bank will hold the benchmark interest rate steady, ending seven consecutive months of cuts which took borrowing costs to a historic low. Stocks in Latin America were lower, with Chilean and Mexican equities leading declines. Key Latin American stock indexes and currencies at 1515 GMT: Stock Latest Daily % change indexes MSCI Emerging Markets 1129.77 -0.59 MSCI LatAm 1954.70 -0.67 Brazil Bovespa 101396.49 0.14 Mexico IPC 38367.02 -0.88 Chile IPSA 3778.16 -0.78 Argentina MerVal 51828.99 -1.302 Colombia COLCAP 1165.27 -0.86 Currencies Latest Daily % change Brazil real 5.6290 -0.04 Mexico peso 20.9970 -0.61 Chile peso 776.9 -0.55 Colombia peso 3813.21 -0.67 Peru sol 3.6027 -0.16 Argentina peso (interbank) 78.2000 -0.09 Argentina peso (parallel) 190 2.63 (Reporting by Shreyashi Sanyal in Bengaluru; Editing by Bernadette Baum)