EMERGING MARKETS-Strong dollar dents FX; Russian rouble firms despite flagging of rate cuts
* Capital controls buoy Russian rouble * Chinese yuan cheers strong GDP data * Argentine peso slides; inflation surges more then expected * Moody’s downgrades Sri Lanka, outlook stable By Susan Mathew April 18 (Reuters) – Russia’s rouble firmed on Monday, despite the central bank flagging more interest rate cuts, and outperformed broader emerging market peers which succumbed to rising U.S. Treasury yields and the dollar. The rouble firmed to around 78 a dollar in Moscow as well as offshore trading. {RU/RUB} Russian Central Bank Governor Elvira Nabiullina on Monday flagged a further cut in interest rates and said it would take two years to rein back inflation to its 4% target. Nabiullina raised the bank’s key interest rate to 20% from 9.5% on Feb. 28, four days after Russian forces entered Ukraine, but trimmed it to 17% on April 8. Fluctuations in the rouble are artificially limited by capital controls that Russia imposed in late February to guard the currency from a slide after the West imposed severe sanctions over Moscow’s invasion of Ukraine. This week the rouble is expected to trade within the range of 79-82 to the dollar and 84-87 to the euro, Rosbank analysts said in a note. The broader emerging markets currencies index hit three-week lows, down 0.14%, on track for its eight session in the red in 10, as the dollar hovered at near two-year highs. Expectations of aggressive monetary policy tightening by the U.S. Federal Reserve this year to tame surging inflation have lifted U.S. bond yields and the dollar this year, pressuring riskier assets. China’s yuan edged up on stronger-than-expected economic growth, while most other Asian currencies weakened. South Africa’s rand lost 0.5%, and while most Latin American currencies were flat, Argentina’s peso fell 0.7% despite heavy controls. Argentine monthly inflation climbed to 6.7% in March, data showed last week, taking annual inflation to 55.1%, above estimates. Argentina’s benchmark interest rate is set to be hiked by 250 basis points to 47%, a central bank source told Reuters on Wednesday. Brazil’s real rose 0.4% with investors keeping an eye on the 2023 budget guideline bill. Data on Monday showed inflation in April rose more than in March, keeping up expectations for monetary tightening for longer. Central bank employees continue to be on strike over calls for salary increases, hampering the release of economic indicators. Moody’s on Monday joined S&P and Fitch in downgrading Sri Lanka further into junk and said it expects foreign inflows to remain subdued. It gave a “stable” outlook, saying losses private sector creditors would face in debt restructuring are likely to be consistent with its current rating. Key Latin American stock indexes and currencies at 1429 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1106.85 -0.54 MSCI LatAm 2597.86 0.35 Brazil Bovespa 115397.25 -0.68 Mexico IPC 54440.93 0.5 Chile IPSA 4924.25 0.14 Argentina MerVal 92600.90 1.713 Colombia COLCAP 1616.07 0.06 Currencies Latest Daily % change Brazil real 4.6753 0.43 Mexico peso 19.9430 -0.01 Chile peso 816.3 -0.22 Colombia peso 3719 0.00 Peru sol 3.73 0.08 Argentina peso 113.6800 -0.62 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Nick Macfie)
