Chile's peso hit by recession fears; Turkish lira slides on rate cut

Chile's peso hit by recession fears; Turkish lira slides on rate cut

* Economists project recession in Chile as Q2 GDP misses forecasts

* Turkey cenbank cuts key interest rate by 100 bps

* Brazil economy minister raises economic growth forecast

By Susan Mathew and Shreyashi Sanyal

Aug 18 (Reuters) - The Chilean peso fell sharply on worries of a recession on Thursday after data showed its economy grew less than expected in the second quarter, while Turkey's lira remained decidedly lower following another large interest rate cut.

The peso CLP= dropped 3.5% to its lowest level in nearly a month after data showed a 5.4% expansion in Chile's economy from a year earlier, below expectations of a 5.7% rise.

Leading economists forecast a potential recession as pandemic-related stimulus is unwound. It also highlighted Chile's struggle to grow as the central bank aggressively tightens its monetary policy to tame soaring inflation, which reached a near three-decade high last month.

"Chile's economy merely stagnated in Q2 and the chances are high that it will fall into recession over the second half of the year," said Kimberley Sperrfechter, Latin America economist at Capital Economics.

"Meanwhile, current account risks are continuing to build – with the deficit widening to more than 8% of GDP in Q2 – which will keep the peso on the backfoot."

Turkey's lira TRY= fell 0.7% after the central bank cut the main interest rate to 13% despite inflation nearing 80%. Markets had expected the rate to be kept unchanged.

The central bank's decision goes against moves by most other emerging market peers which are on a hiking cycle to rein in surging inflation.

The lira had declined 44% last year, thanks to 500 bps of cuts as President Tayyip Erdogan demanded stimulus to drive economic drive. The currency is down 26% so far this year, and is among the worst performing emerging market currencies.

The dollar firmed after U.S. Federal Reserve minutes showed it intended to keep raising interest rates to tame inflation though they tempered to an extent bets for a third 75-basis-points hike and offered no new insights on the Fed's stance.

Brazil's real BRBY fell 0.2%. Brazilian Economy Minister Paulo Guedes predicted on Wednesday that the economy would grow by more than 2.5% this year, improving his 2% forecast from June.

Mexico's peso MXN= slipped 0.6%, while Colombia's peso COP= fell 1.5%, with the latter extending gains to a third straight session.

Inflation expectations in Colombia show consumer prices may take a "longer period" to return to the central bank's long-term target of 3%, the bank board's head Leonardo Villar said on Wednesday.

Latin American stock indexes and currencies at 1922 GMT:

Stock indexes


Daily %

change MSCI Emerging Markets .MSCIEF


-0.69 MSCI LatAm .MILA00000PUS


-0.42 Brazil Bovespa



0.06 Mexico IPC



-0.11 Chile IPSA



-0.98 Argentina MerVal



3.668 Colombia COLCAP






Daily %

change Brazil real



-0.20 Mexico peso



-0.70 Chile peso



-3.43 Colombia peso COP=


-1.04 Peru sol



-0.08 Argentina peso (interbank)


-0.18 ARS=RASL

Argentina peso (parallel) ARSB=



Reporting by Susan Mathew and Shreyashi Sanyal in Bengaluru; Editing by Emelia Sithole-Matarise and Grant McCool