Brazil’s Ibovespa crashes amid international and domestic uncertainty

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Ibovespa, Brazil’s benchmark stock index, has started the week with a negative dip, crashing 1.79 percent by 2 pm on Monday. The crash comes amid global fears over U.S. inflation and possible new Covid lockdowns in China.

Domestically, there are concerns regarding the impact of rising inflation and high interest rates on Brazilian consumers’ purchasing power. Inflation data released last Friday shows inflation climbing again, with the 12-month consumer price index at 11.89 percent in June.

Meanwhile, the Central Bank raised the Selic benchmark interest rate to 13.25 percent last month and indicated that rates will remain in high territory for longer than initially forecast.

In the Central Bank’s latest Focus bulletin, released Monday, private sector analysts nonetheless revised inflation forecasts for the year down from a week earlier, to 7.67 percent. They expect the Selic to close 2022 at 13.75 percent.

Companies in the retail and consumer goods sector contributed to the Ibovespa dip, with the share prices of retail giant Americanas (-0.56 percent) and cosmetics group Natura (-3.22 percent) amongst those to record a negative performance this morning.

President Jair Bolsonaro is also stoking investor concern as his government throws out all fiscal rigor and pursues expensive social policies in a bid to up his re-election chances in October. The lower house is expected to vote this week on a constitutional amendment that would greenlight the use of an extra BRL 41.2 billion for social policies and stimulus programs.