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Weekly Investment-related News and activity mirror Brazil's growth

May 24, 2010

 

Brazil’s inflation grew more than had been expected in the days leading through mid may confirming expectations that the Brazilian Central bank may raise the benchmark interest rate, 0.75% to prevent economic overheating for the second time successively. From April 14th to May 13th, the IPCA-15 index reported a 0.63% rise in consumer prices from 0.48% the previous month. The Index rose more than the median estimate put at 0.58% in a Bloomberg survey of 38 Brazilian economists. The country’s fastest expansion in more than two years has caused inflation forcing the government to raise interest rates after maintaining the Selic at record lows for nine months.  The inflation through mid May rose fast to 5.26% from 5.22% a month earlier.

 

Key indicators have shown that the Brazilian economy is rebounding well from the financial crisis with retail sales reportedly up 15.7% and industrial production grew by 19.7%. Itau-Unibanco Holdings SA, Brazil’s biggest bank by market value, might raise its 2010 growth predictions to highs of 8.5% according to the bank’s economist.  Last week, it pegged its growth forecasts at 7.5% for 2010 and 4.8% for 2011. Brazil’s GDP will grow by 6.3% in 2010, the fastest since 1986 in which it grew by 7.49%, according to a Central Bank survey that interviewed 100 economists.

 

Brazil’s biggest card acquirers, Cielo and Redcard, witnessed a sinking in their shares last week as the government announced potential capping fees underscoring the jittery nature of investors in the card industry. Cielo closed down more than 13% in trade on the Bovespa exchange from their close on Monday, declining to15.50 reals, while Redcard declined by 11% to 28.29 reals.

 

Brazilian bonds reported more earnings in the last 19 months than stocks after the economic recovery failed to initiate a comeback in equities. Global funds invested a net of $105.3 million in Brazilian local and international bonds in the two weeks through May 12th, while pulling $487.2 million from stocks according to data gathered by the EPFR Global.

 

The Brazilian economy is expected to grow the fastest in decades this year and as a result, tax revenue and its debt repayment capability has been greatly boosted. Petroleo Brasileiro had a 19% decline this year that led the Bovespa to drop as crude sank 12%, slipping below $70 a barrel on Friday since December. Brazil’s real fell for the sixth day running as at the close of the market last week, the longest in 19 months on speculation that the tumbling prices will lower the value of exports and Europe’s debt crisis prompts investors to shun higher-yielding, emerging markets assets.