target cut@ SAO PAULO, June 29 (Reuters) - Yields paid on Brazilian long-term interest rate future contracts fell on Thursday after the government cut its annual inflation target for the first time in more than a decade and a proposal to overhaul labor regulations cleared a congressional hurdle. The National Monetary Council, Brazil's highest body of economic policy, set inflation targets of 4.25 percent for 2019 and 4.00 percent for 2020, compared with the goal of 4.50 percent for previous years. Economists expected a reduction, but the lower 2020 goal came as a surprise. Before the decision was announced, they had been forecasting an annual inflation rate of 4.25 percent for the years of 2019, 2020 and 2021, according to a weekly central bank poll released on Monday. The lower target fostered bets that the central bank could cut rates by more than expected next year, traders said. Still, short-term rate futures were flat as the outlook for the near term remained intact, with yields suggesting a 75 basis-point cut in the Selic rate next month to 9.5 percent. Hopes that President Michel Temer's plan to revamp labor regulations could pass a Senate vote next week also helped drive long-term yields lower after a congressional committee approved the proposal early on Thursday. Demand for Brazilian assets has increased on hopes that Temer's plan could curb public debt and boost long-term economic growth, but mounting corruption scandals have left some traders cautious. The Brazilian real, however, weakened 0.3 percent, tracking other Latin American currencies lower. The Mexican peso was down 0.8 percent as traders booked profits from a recent rally following stronger-than-expected U.S. economic growth data. The U.S. report allayed some concerns over the pace of economic growth in the world's No. 1 economy, which had triggered bets on a slow pace of interest rate hikes in coming months.
Key Latin American stock indexes and currencies at 1420 GMT:
Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 1012.69 0.06 17.38 MSCI LatAm 2529.09 0.02 8.03 Brazil Bovespa 62165.99 0.24 3.22 Mexico S&P/BVM IPC 49170.80 -0.34 7.73 Chile IPSA 4737.54 -0.2 14.12 Chile IGPA 23741.25 -0.18 14.50 Argentina MerVal 21434.53 0.19 26.70 Colombia IGBC 10796.19 0.3 6.60 Venezuela IBC 121784.38 -0.34 284.11 Currencies daily % YTD % change change
Brazil real 3.2922 -0.26 -1.31 Mexico peso 17.9955 -0.83 15.27 Chile peso 661.9 0.18 1.33 Colombia peso 3031.57 -0.55 -0.99 Peru sol 3.246 0.00 5.18 Argentina peso (interbank) 16.4800 -0.18 -3.67 Argentina peso (parallel) 16.62 0.60 1.20
(Reporting by Bruno Federowski)