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



By Susan Mathew

Dec 6 (Reuters) - Latin American currencies rose on Tuesday, with all eyes on discussion of a fiscal easing bill in Brazil, while Chile's peso jumped 1.6% ahead of a central bank policy decision.

Emerging market currencies rose .MIEM0000CUS as the dollar, which had briefly gained momentum following strong economic data on Monday bolstering the case for a hawkish Federal Reserve, steadied as bets still showed traders expected a smaller hikes.

Brazil's real BRBY rose 0.8%. The Senate on Tuesday 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.

Mexico's peso MXN= was flat, while Colombia's peso COP= firmed 0.6%.

Chile's peso CLP= was on course for its best session in over a month 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.

"We expect the authorities (in Chile) to use a cautious tone and signal they will wait to accumulate further evidence before deciding their next move," said Citigroup strategists.

"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."

On the fixed income front, hard-currency bonds issued by a number of smaller, riskier emerging markets - so-called frontier markets - suffered sharp declines with dollar debt issued by Pakistan, Ghana and Sri Lanka all down between 2-3.5 cents, Tradeweb data showed. XS2419405274=TE USY8137FAL23=TE US37443GAJ04=TE

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. .JPMEGDR

In El Salvador, S&P Global affirmed El Salvador sovereign credit rating at CCC+, maintaining a negative outlook.

Key Latin American stock indexes and currencies:

Stock indexes

Latest

Daily %

change MSCI Emerging Markets

972.30

-1.22 .MSCIEF

MSCI LatAm

2183.27

0.66 .MILA00000PUS

Brazil Bovespa

110453.53

0.96 .BVSP

Mexico IPC

50553.77

-0.48 .MXX

Chile IPSA

5241.96

-0.61 .SPIPSA

Argentina MerVal

166074.79

0.977 .MERV

Colombia COLCAP

1218.33

0.05 .COLCAP

Currencies

Latest

Daily %

change Brazil real

BRBY

5.2390

0.84

Mexico peso

19.7370

-0.06 MXN=D2

Chile peso

CLP=CL

879.5

1.06

Colombia peso COP=

4804.39

0.59 Peru sol

PEN=PE

3.851

0.10

Argentina peso

169.5000

-0.20 (interbank) ARS=RASL

($1 = 5.2386 reais)
Reporting by Susan Mathew in Bengaluru; Editing by Andrea Ricci

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