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Brazil Stays the Course Despite Political Pressure

Brazilian markets jumped higher, as investors reacted positively to the latest news. Brazil’s aggressive rate hike was welcomed. Brazil’s benchmark Bovespa Index rose 185.46 points, or 0.81%.

Brazilian stocks solidified despite a larger-than-expected rate hike by the central bank, after shares already took a significant pounding in recent sessions.


The bank’s monetary policy committee voted unanimously to raise the benchmark Selic rate by a half percentage point to 16.75%, steeper than widespread projections for a quarter percentage point hike.


In its statement, the bank said it increased the Selic “to continue the process of a moderate adjustment in basic interest rates begun in the September meeting.”


Some analysts noted that in spite of the rate hike’s size, investors had been prepared for an increase.


Also, the aggressive move countered fears that monetary policy would succumb to political pressures, as experts say the government would like to preserve growth expectations prior to the second round of municipal elections on October 31.


With some analysts explaining that Brazilian banking stocks look to benefit from the interest rate decision, shares of Banco Bradesco, Banco Itaú and Unibanco were active.


In other news, Brazil posted a current account surplus that expanded to US$ 1.74 billion in September from US$ 1.32 billion one year ago.


The data meant Brazil’s current account surplus was equivalent to 1.80% of gross domestic product in the 12 months to September, up from 1.74% in the 12 months to August.


Following the data’s release, the central bank’s Economics Department Coordinator said the September current account surplus was the best on record since the nation began tracking the number in 1947.


On the corporate front, commodities giant Cia Vale do Rio Doce sold its controlling stake in Pará Pigmentos S.A. to its subsidiary Caemi Mineração Metalúrgia S.A. for US$ 117.8 million.


CVRD plans to consolidate its kaolin business in Caemi, which is already a major player in the world market for kaolin.


Oil workers demanding a wage increase from state-owned Petrobras said they will give the company at least until the first week of November before resorting to a strike.


The director of the United Oil Workers’ Federation indicated that union leaders will meet next week to discuss the deadline for Petrobras to come up with a new proposal.


Thomson Financial Corporate Group
http://www.thomsonfinancial.com/

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