The surprising US Fed's cut of its federal funds rate by 50 basis points to 4.75% had immediate repercussion at Bovespa, Brazil's stock market. The Ibovespa, Bovespa's main index oscillated around 1% in positive territory until 3:14 pm, Brazilian time, when the Federal Reserve decision was announced. At 3:40 the index had already zoomed to 4.5%.
In inverse direction the American dollar plummeted 2.29% vis í vis the real, closing at 1.877 reais for one dollar, the lowest value since the beginning of August.
The Ibovespa, which tracks the 63 most traded stocks in the Brazilian stock exchange, closed Monday with 56,666 points, a 4.28% boost for the day. It was the best daily hike since March 6 when the Ibovespa gained 5%.
The volume of transactions reached 5.77 billion reais (US$ 3.03 billion). For the Brazilian stock exchange, yesterday's results were the best since July 23, the day before the start of the American financial crisis that's dragging down markets worldwide.
Brazil's country-risk rate followed the dollar down falling 6% to 188 points.
In the good news department, Brazil's government-controlled oil company Petrobras announcedÂ that the country's oil production grew to 1.8 million daily barrels in August, 2.5% above what was produced last year in the same period. The company's preferential shares jumped 4.33% to 56.85 reais.
Brazilian analysts are cheering the Fed action. The Federal Reserve's decision should bring more dollars to Brazil from international investors looking for a place that will give more bang for their bucks.
For being riskier than their American counterparts Brazilian shares need to offer a better reward to foreign investors in order to entice them to bring their money to the country.
Another benefit will be felt by Brazilian companies, which will be able to get better terms for their international loans. Moreover, a prosperous US economy is also good news to exporters since the United States is still Brazil's largest buying market.
As Luís Otávio Leal, economist from the ABC Brasil bank, explains, "For Brazil, it is better when the interest rates fall. With smaller interest rates in the US, foreign investors will look for emerging countries like Brazil in search of better rentability. If the appetite for risk comes back among investors, Brazil will be the first in the list."
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