Brazil Leaves Key Interest Rate Alone at a Steep 13.75%

Brazil's stock exchange, Bovespa Brazil's Monetary Policy Committee (Copom) decided to keep, this Wednesday, October 29, the Selic, the country's key interest rate. at 13.75%. It was a hard call for the committee, which had to balance a sputtering economy due to the global financial crisis and the inflationary pressure brought up by a rising dollar.

According to experts, at the end, all the Copom members voted unanimously in favor of keeping the interest rate untouched for several reasons, including the fact that it wouldn't make much sense to raise the Selic in order to reduce consumption while Brazil's Central Bank is making more money available to stimulate expenditure.

It would also be hard to explain an increase at a time when the United States Fed, some European central banks and the Chinese are cutting their interest rates.

The Selic has being steadily lifted since April. The interest rates were raised in four installments from 11.25% to the present figure.

The Copom so explained their decision: "Evaluating the prospective scenario and the level of risk for inflation, in an environment of great uncertainty, the Copom decided, unanimously, at this time, to keep the Selic rate at 13.75% a year, without bias."

São Paulo's stock exchange, the Bovespa, had gained 4.37% when it closed at the end of the trading session on Wednesday inspired among other things by the cut of interest rates by the Fed. 

The Ibovespa, Bovespa's main index, ended the day at 34,845 points. It was a calm day without big oscillations.

The dollar, on the other hand, continued it descending trajectory, losing 1.88% of its value to close at 2.142 reais per dollar.

The Brazilian Central Bank reported that the exchange flow in the first 18 workdays of October reached 4,397 billion dollars in minus territory. If this result were for the whole month, this would be the worst monthly result since January 1999.

Recovery

Major Latin American markets recovered strongly Tuesday as investors in the region and on Wall Street set aside worries about global recession to take part in a buying spree convinced that the Fed would announce – as in fact it did – further interest rate cuts on Wednesday.

US stocks soared with the Dow Jones Industrial Average (DJI) up a massive 889 points to close above the 9,000-points level. The S&P 500 Index ( SPX) gained nearly 11% thanks largely to a leap in financial stocks.

In Sao Paulo, the Bovespa soared 13% to 33,386.65, slicing last week's total losses of 13.5%. The Brazilian currency appreciated 3.2% closing at 2.18 against the US dollar.

The IPC, which tracks Mexico's 35 most actively traded shares, jumped 10.46% to 18,632.53. The gains swept away the bulk of last week's 16% slump. The Mexican peso also was up 3% against the US dollar, at 13.2.

Chile's IPSA rose 1.8% Tuesday, to 2,389.85. The Chilean peso also recovered vis-í -vis the US dollar and closed at 676 following Monday’s almost 690. So far this year the Chilean peso has devalued 26% against the US dollar. Colombia's IGBC index rose 3% to 6,657.

Argentina's Merval closed up 6.6% to 893.98, led by a 15% leap in shares of steel tube maker Tenaris SA (TS), and a 14% rise in shares of electric utility Edenor (EDN). The Merval last week sank 27% after the government moved to nationalize pension funds.

Fears of an Argentine government takeover of 30 billion US dollars in private pension funds may have put a ceiling on the surge but according to brokers investors were impressed with strong opening arguments by lawmakers who oppose the measure, which was presented Tuesday during the first day of Congressional debate of the bill.

Bzz/Mercopress

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