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EMERGING MARKETS-Weaker dollar buoys Latam FX; rate hike lifts Chile's peso

·3 min read

* Chile cenbank revises up inflation forecast * Mexico auto production up 31.36% in August (Updates prices) By Anisha Sircar and Amruta Khandekar Sept 7 (Reuters) - Major Latin American currencies rose on Wednesday as a dollar rally on aggressive rate hike expectations fizzled out, with the Chilean peso getting an additional boost from a bigger-than-expected rate increase overnight. The Andean country's central bank lifted its benchmark interest rate to 10.75% from 9.75%, while raising its inflation estimate to 11.4% from 10.8%, reinforcing bets on more hikes to combat rising prices. The peso rose 0.9%. "Chile is not unique in a large 100 bps rate hike – the market expects double-digit terminal rates in all major Latam economies," said Natalia Gurushina, EM economist at VanEck. The peso saw wild swings in recent sessions after voters overwhelmingly rejected a new progressive constitution that was key to President Gabriel Boric's agenda. Peru's central bank on Thursday is scheduled to deliver its own interest rate decision. In July, it had raised the country's benchmark rate by 50 basis points to 6%, a 13-year high. The sol edged lower in volatile trading. Weighing on the sol was a dip in copper prices, which slid after a grim China trade added to worries about a global economic slowdown. The safe-haven dollar slipped 0.47%, inching lower from a 20-year high hit earlier this week, despite the U.S. economy showing signs of resilience. Emerging market currencies will find it difficult to reclaim ground lost this year as relentless Federal Reserve rate hikes and safe-haven demand keep the dollar ascendant, a Reuters poll of currency strategists found. Brazil's real inched 0.1% higher. The currency is expected to hover in a tight range in dollar-dominated trading this month as Brazilians prepare to vote in the Oct. 2 presidential election, according to a poll. Mexico's peso gained 0.7%. The country's automotive production and exports rose in August from a year ago, data showed. Meanwhile, Argentina and the Inter-American Development Bank agreed on Tuesday to expand financing to the country by $400 million this year. Brazil's Bovespa stock index fell 2.17% as a slide in prices of metals and crude hit shares of heavyweights Vale SA and state-run oil company Petrobras. Key Latin American stock indexes and currencies at 1907 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 957.95 -0.76 MSCI LatAm 2132.41 0.01 Brazil Bovespa 109763.77 -2.17 Mexico IPC 45975.35 0.16 Chile IPSA 5522.81 -1.51 Argentina MerVal 140693.98 2.465 Colombia COLCAP 1214.27 -1.04 Currencies Latest Daily % change Brazil real 5.2528 -0.27 Mexico peso 19.9960 0.61 Chile peso 884.8 0.80 Colombia peso 4396 1.77 Peru sol 3.8792 0.46 Argentina peso (interbank) 140.8000 -0.14 Argentina peso (parallel) 280 -1.43 (Reporting by Anisha Sircar, Amruta Khandekar and Devik Jain in Bengaluru Editing by Nick Zieminski and Richard Chang)