Stock exchange, real gain ground after inflation reading
The positive surprise with Brazil’s official inflation index IPCA’s March reading fueled investors’ belief that the Central Bank could lower Brazil’s key interest rate Selic sooner than expected and boosted local markets Tuesday, with highlight for the benchmark stock index Ibovespa, which gained more than 4%. A new round of falls in interest rate futures provoked a strong repricing of stocks linked to the domestic economy, despite the doubts that still linger over the government’s new fiscal plan.At the end of the day, the rate on the January 2025 inter-bank contract (DI) fell to 11.805% from 11.975%; and the January 2026 DI fell to 11.635% from 11.84%. The short and intermediate rates fell the most, precisely because of their greater sensitivity to the monetary policy outlook.The Ibovespa rose 4.29%, to 106,214 points, returning to levels last seen on March 8. Meanwhile, the exchange rate again tested the psychological barrier of R$5 to the dollar, closing the day down 1.17% at R$5.0067, the lowest level since June 10, 2022.Domestic assets showed a largely positive behavior since the opening of business, as agents analyzed the IPCA data for March. Brazil’s official inflation rose by a lower-than-expected 0.71% last month. In addition, the strong deceleration in core inflation reinforced the positive tone of the data."It is a visible process of disinflation," says the treasury director of a local bank. The market has even lowered the pricing of inflation for the next few years. The inflation extracted from the Brazilian Treasury notes NTN-B with maturing in May 2025 fell to 5.73% on Tuesday from 5.83% on Monday, while inflation embedded in the NTN-B maturing in May 2033 fell to 5.99% from 6.12%.The de-anchoring of inflation expectations is seen as one of the main obstacles for the Central Bank to start cutting interest rates, and Tuesday’s reaction led agents to start discussing a possible cut in the Selic at the June meeting of the Central Bank’s Monetary Policy Committee (Copom).Comments made by Treasury Secretary Rogério Ceron also contributed to the good mood in the market. In an interview with O Globo newspaper, Mr. Ceron pointed out that the proposed new fiscal plan will not include extraordinary revenues in the calculation, only recurring ones, and indicated that there should be a lock to prevent a revenue surplus from being used entirely in investments.Joaquim Kokudai, CIO of Somma/JPP Capital, said that the Brazilian market has...
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