Brazil’s Stocks Rise as Inflation Data Fuel Rate Cut Speculation

(Bloomberg) -- The Ibovespa rose to a two-year high after slower-than-forecast inflation encouraged bets that Brazil’s central bank is about to start easing monetary policy, giving a boost to the government’s efforts to restore growth.

Lenders Itau Unibanco Holding SA and Banco Bradesco SA were the biggest contributors to the benchmark equity index’s advance, while Banco do Brasil SA climbed to its highest price since May 2015. Steelmaker Gerdau SA was the best performer on the gauge as metals prices gained.

After advancing 41 percent this year, Brazilian stocks got another boost from data Friday showing the benchmark IPCA consumer price index rose at its slowest pace in more than two years as food prices dropped. Ilan Goldfajn, president of the central bank, told the Wall Street Journal that the authority may begin easing monetary policy under the right conditions, including the passage of spending cuts and slower inflation, particularly in the services sector. Against that positive backdrop for stocks, traders also turned their focus to a Brazilian congressional vote set for Monday on a bill that would limit government spending, which would be the first real step toward a promised austerity. 

"The approval of that legislation would show the government’s progress in its reform plans," Ari Santos, a stock manager at brokerage H.Commcor, said from Sao Paulo. "That would be as great signal to the market."

The Ibovespa gained 0.8 percent to 61,108.98 at the close of trading in Sao Paulo as 40 of its 58 stocks climbed. Itau added 0.9 percent, Bradesco climbed 1.4 percent and Banco do Brasil rose 2.4 percent. Gerdau climbed 3.9 percent and Usinas Siderurgicas de Minas Gerais SA, known as Usiminas, advanced 2.7 percent.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, dropped 0.05 percentage point to 11.96 percent.

--With assistance from Ney Hayashi

To contact the reporters on this story: Denyse Godoy in Sao Paulo at dgodoy2@bloomberg.net, Marisa Castellani in Sao Paulo at mcastellani7@bloomberg.net.

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net, Jessica Brice