Brazilian shares weakened, ahead of some predicted monetary tightening this week. The central bank of Brazil is expected to tighten monetary policy this week in attempts to curb inflation, raising concerns that economic growth could be slowed.
Brazil’s benchmark Bovespa Index plunged 518.08 points, or 2.21%. Brazilian stocks declined, as investors stayed on the sidelines one day ahead of a likely domestic interest rate hike.
Brazil’s central bank is widely anticipated to increase its benchmark Selic lending rate by a quarter percentage point to 16.50% on Wednesday in an effort to curb inflation at the conclusion of its two-day monthly monetary policy meeting.
A rate hike would be the second straight increase after the bank hoisted the Selic by a quarter percentage point in September for the first time in 19 months.
Additionally pressuring Brazil’s market, widespread rumors circulated that Central Bank President Henrique Meirelles may resign.
However, central bank officials declined to comment on the rumor, with Meirelles himself noting to Reuters ahead of the start to the bank’s rate setting meeting beginning later today,
“I don’t talk during monetary policy meetings.”
A number of traders explained that the rumor stemmed from a column in the Folha de S. Paulo newspaper that said Meirelles had received signals President Luiz Inácio Lula da Silva is unsatisfied with the bank’s tight monetary policy.
On the economic front, Brazil’s retail sales rose 7.5% in August from a year before, for the slowest pace in seven months, indicating that economic growth began to cool down before the central bank started tightening monetary policy. Retail sales had increased 12% in July.
Turning to corporate news, Embratel Participações stated it incurred a net loss of 67 million reais (US$ 22.3 million) for the third quarter, versus a year-ago net profit of 15.5 million reais (US$ 5.2 million), on more than 100 million reais in unusual charges.
Brazil’s largest long-distance operator saw net revenues decline 1.1% to 1.77 billion reais (US$ 590 million) last year, as the firm faced greater competition from new entrants in the long-distance market.
On an operating basis, earnings before interest, taxes, depreciation and amortization dropped 54% to 241 million reais.
Thomson Financial Corporate Group
http://www.thomsonfinancial.com