Brazil's central bank is expected to stand pat on interest rates at 6.50 percent and hold off on hiking the benchmark borrowing rate for the rest of the year, a Reuters poll showed. The decision is expected later in the day, with analysts saying the focus may slowly be shifting to whether the bank's next policy move could be a rate cut.
"We think such speculation (rate cut) is way premature," analysts at Commerzbank said in a note, pointing to the fact that a much-anticipated pension reform was yet to be passed. "The central bank had always stressed that fiscal policy reforms were necessary to keep inflation in check.
Against this backdrop, the central bank should stay cautious and not fuel rate cut speculation further." Over the year, however, a separate Reuters poll showed that the Brazilian real will advance on hopes President Jair Bolsonaro will deliver on his economic reform agenda, although investors' optimism may already largely be priced in.
The Bovepsa stock index slumped more than 2 percent, with all sectors in the red. Top lenders were the biggest drags on the finance-heavy index. Meanwhile, Mexico's peso fell after gains in the previous session when President Andres Manuel Lopez Obrador said his government would take extraordinary measures to support debt-laden state oil company Pemex after it was recently downgraded by Fitch rating agency. Mexico's central bank is to meet on Thursday to decide on interest rates, with expectations that it would hold the key rate at 8.25 percent.
"We think that the board will leave the door open to further hikes if the inflation scenario were to worsen," Credit Suisse analysts said in a note. "It will likely acknowledge a clear worsening in the growth outlook in early 2019 partly due to the gasoline shortages in several areas of the country last year." "We are inclined to think that the bank will likely maintain the same policy guidance as in previous statements."