The Brazilian Stock Exchange's major stock index BOVESPA intraday decline expanded to 4%, to 75,726 points, a new low this year.
Brazil BOVESPA index has been in a volatile downward trend since May 17, 2018. After 12 consecutive interest rate cuts, the Brazilian central bank announced on May 16 that it would maintain the benchmark interest rate at 6.5%, while the market had previously generally expected that the Brazilian central bank would lower the benchmark interest rate by 25 basis points this time. This actually violates the policy guidance previously provided by the Brazilian Central Bank.
Huaan Securities Xu Yang analyzed that recently, turmoil in emerging markets has begun to force the Brazilian central bank to change its monetary policy stance.
Huaan Securities research report pointed out that in a survey of 39 economists by BLOOMBERG, only two predicted that the Brazilian Central Bank would remain silent. The Brazilian Central Bank has started a new round of interest rate cuts since October 2016, and has cut interest rates more than ten consecutive times, reducing the benchmark interest rate from 14.25% to 6.5%. The unexpected move of the Brazilian central bank is aimed at dealing with the worsening external environment. The Brazilian central bank said in a statement that as the global outlook becomes more challenging, investors' risk appetite for , an emerging economy, has weakened.
also mentioned in Huaan Securities' research report that Bank of America carefully reminds how the emerging market storm will evolve in the future, whether it will systematically sweep the entire financial market and spread to developed markets, the trend of Brazilian real is the key.
When the Brazilian real fell to USD 4 (currently around USD 3.7), it is likely to cause deleveraging and spread the crisis to the credit portfolio. So far, the Brazilian real exchange rate against the US dollar has fallen to a two-year low, with a cumulative decline of more than 17% since the end of January.
(Declaration of the Economic Journal: The content of the article is for reference only and does not constitute investment advice. Investors act on this basis at their own risk.)
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