After circuit breaker, Durigan sees market reaction as an effect of electoral defeat
Minister of Finance says that the government remains in contact with financial agents and that the purchase of around R$10 billion in bonds sought to rebalance the supply.
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM GAZETA DO POVO · 2 MIN
The exchange had to activate the circuit breaker, a mechanism that temporarily suspends trading, after the victory of Luiz Inácio Lula da Silva (PT) in the second round was officially confirmed. This Tuesday (27), the Minister of Finance, Dario Durigan, sought to give another interpretation to the movement. According to him, the market reacted badly mainly because it lost the candidate it was betting on, senator Flávio Bolsonaro (PL-RJ).
Durigan said he expects a “level of rationality” in investor decisions, as the re-elected government begins to announce measures. The statement, according to Gazeta do Povo, came one day after the sharp fall, and the minister said he had spent the day before in contact with financial market agents.
To contain the disarray, according to the minister's report, the Treasury acted together with the National Treasury and the Central Bank. The action included a public bond buyback operation, worth around R$10 billion, with the aim of rebalancing the supply of these securities on the market.
In the same speech, Durigan associated price stability with the government's commitment to the center of the inflation target, which according to him continues to be the management's objective. The question that remains open is whether the announced measures will be sufficient to convince investors that this target will be consistently pursued.
The episode shows that the formation of asset prices depends both on the results of the polls and on the predictability of public accounts. Anyone who follows the topic knows that changing electoral expectations, alone, does not resolve the doubt about the fiscal path.
What changes for the investor
The most immediate message is that interest rates and exchange rates tend to remain attentive not only to the electoral calendar, but also to signals from the Treasury and the Central Bank. Bond buybacks may ease pressure on the supply of securities in the short term, but are not a substitute for a credible fiscal framework in the medium term. For those who invest in the stock market, Nasdaq or dollar, it is worth following the measures that the government details and the behavior of long interest rates in the coming sessions. This report does not provide a purchase or sale recommendation or price projections.
Automatically translated from Portuguese.
