Brazil’s Black Monday Brings Market Down 5.43% and Dollar Up 7.53%

Brazil's Bovespa It was another black Monday in the Brazilian stock market, this October 6. São Paulo's stock exchange, the Bovespa, had to be closed twice after the Ibovespa index fell 10% and then 15%. Things only calmed down a little after Brazilian Finance minister, Guido Mantega, showed up for a press conference.

The Bovespa ended up closing at 42.100, a 5.43% slump, the lowest level since March, 5. 2007. The commercial dollar went up 7.53%, closing at 2.20 reais for sale, the highest value for the American currency since September 2006.

The Bovespa's rules call for the "circuit breaker" to be activated to calm the market every time there's an oscillation that is 10% up or down. If the market then falls 15% in the same trading session the session is closed again for a whole hour. The first stop occurred from 10:18 am to 10:48 am. The second one happened between 11:44 am to 12:44 pm.

According to the Bovespa press office, this was the third time in the stock exchange's history that the markets had to be interrupted for an hour. The first time happened on October, 28, 1997 and the second one on September 10, 1998.

In his press conference Mantega, announced measures to help small banks and exporting together with the injection of US$ 1,47 billion in the market by Brazil's Central Bank.

The Brazilian government intends to use money from its international reserves to guarantee credit in dollars to Brazilian exporters and to help to relieve the exchange rate pressure. Furthermore, the BNDES (National Bank of Economic and Social Development) is stepping up it credit lines to finance exports.

The first measure should work as a loan in dollars. The Central Bank promises to buy banks securities overseas and pay them with Brazil's reserves. It will be like a loan in dollars with a contract of repurchase by the loan takers. As explained by Central Bank chief, Henrique Meirelles:

"It's a credit line in dollars overseas using our reserves. It will be a purchase of securities by the Central Bank, therefore a sale of private banks' securities abroad, with a contract of repurchase."

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