Central Bank’s Push Sparks Biggest Rally in World for Ibovespa

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The Ibovespa led gains among the world’s major benchmarks after Brazil’s central bank lowered the upper limit of its inflation target to boost confidence in an economy set for the worst recession since 1990.

The advance put the stock gauge on pace for the best first half of any year since 2009 amid wagers that government measures will tame consumer-price increases, revive growth and preserve the nation’s investment-grade credit rating. Oil producer Petroleo Brasileiro SA contributed the most to the index’s increase on Friday.

“The market is starting to see that inflation will be more under control,” Fernando Goes, an analyst at brokerage Clear Corretora, said from Sao Paulo. “That’s bringing some optimism to stocks.”

Inflation accelerated to 8.8 percent in mid-June, well above the 4.5 percent goal, even after six consecutive increases in Brazil’s benchmark interest rate. The target for 2017 will be 4.5 percent with a tolerance range of 1.5 percentage points above or below that, the monetary council decided Thursday. The previous range was plus or minus 2 percentage points.

The Ibovespa added 1.6 percent to 54,016.97 at the close of trading in Sao Paulo, bringing this year’s rally to 8 percent. Petrobras jumped 4.8 percent before a board meeting that will discuss the oil producer’s investment plans for the 2015-2019 span.

Utility Cia. Energetica de Minas Gerais climbed 2.7 percent after JPMorgan Chase & Co. raised its recommendation on the stock to the equivalent of hold.

‘Main Message’

“Bringing inflation to 4.5 percent was the main message of this decision,” Budget Minister Nelson Barbosa said in an interview. “The central bank is taking measures they consider necessary to do this as fast as possible.”

While the inflation target is still too high, Brazil’s central bank is making the “correct” decisions to anchor inflation expectations, Marcelo Carvalho, chief economist for Latin America at BNP Paribas, said on a conference call Friday.

Carvalho said a downgrade of Brazil’s credit rating is “probable.” He predicts the economy will grow 0.5 percent in 2016 after a 2 percent contraction this year.

Trading volume of equities in Sao Paulo was 5.7 billion reais ($1.82 billion), data compiled by Bloomberg show. That compares with a daily average of 6.9 billion reais this year, according to the exchange.

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