- Analysts say policy makers will keep interest rates unchanged
- Petrobras joins rally in crude, erasing earlier losses
Brazilian stocks led world gains after weaker-than-estimated industrial production data added to speculation that policy makers will refrain from boosting interest rates.
Petroleo Brasileiro SA rallied with oil, while Meatpacker JBS SA contributed the most to the Ibovespa’s advance and steelmaker Gerdau SA surged 10 percent. After lifting borrowing costs for seven straight times, the central bank will probably keep the benchmark Selic at a nine-year high of 14.25 percent on Wednesday as Latin America’s largest economy heads toward the longest recession since the 1930s.
“The consensus among investors is that the central bank should stop raising rates as the latest economic reports have been much worse than expected,” Raphael Figueredo, an analyst at the brokerage Clear Corretora, said from Sao Paulo. “Still, there are so many uncertainties out there. Volatility will continue to be the name of the game.”
Brazilian equities entered a bear market last month, after falling more than 20 percent from their peak in May, on concern that the country will lose its investment-grade status as the government struggles shore up the budget and revive growth. Higher interest rates have reduced both consumer and business confidence, without bringing inflation to the target.
The Ibovespa rose 2.2 percent to 46,463.96 at the close of trading in Sao Paulo, after tumbling 4.7 percent over the past three days. The gauge is still trading 9 percent below the valuation average of the past year, according to data compiled by Bloomberg based on estimated earnings. The real lost 1.7 percent to 3.7611 per dollar Wednesday, leading world declines.
Brazil’s industrial output fell 8.9 percent in July from the year before, compared with a median estimate of a 6.3 percent decline. The slide added to speculation there will be no change in interest rates this month as the central bank weighs the benefit of tightening monetary policy against the risk of further damping activity.
Swap rates, a gauge of expectations for changes in Brazil’s monetary policy, climbed to a six-year high on Wednesday. Yet the contracts are only pricing in a quarter-point boost for both the October and November meetings. That would bring borrowing costs to 14.75 percent, the highest since August 2006.
Commodity companies led gains in the MSCI Brazil index. Petrobras, as Petroleo Brasileiro is known, climbed 2.7 percent after earlier sinking as much as 3 percent. Crude rose 1.9 percent to $46.25 a barrel. Pulp exporters Fibria Celulose SA and Suzano Papel e Celulose SA climbed as the Brazilian currency weakened to its lowest since 2002. Retailers Lojas Renner SA and Lojas Americanas SA slumped.