Thursday, 22 January 2009

Brazil Markets Rally Following Rate Cut

The Bovespa stock index rose past the 38,500 points, stepping into positive territory for the year, following the yesterday's rate reduction (see graph.) The yield on the zero-coupon bond fell almost 15 basis points to 11.20 percent, signaling a trend for declining interest rates for the next six months or so. Longer tenors showed smaller reductions though. The dollar fell against the real to 2.33 and will likely be testing the 2.3 reais to the dollar along the market session of today, a trader told us. The currency situation is a bit more complicated -- although the real will stage a rally, the monetary policy trend as well as dismal growth projections will limit it. It may remain fluctuating between 2.25 reais and 2.4 reais during the first quarter, says the trader.

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