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Brazil Keeps Rates Unchanged as Real Continues Free Fall

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Brazilian real appreciates after central bank holds rates

The Brazilian real gained against the US dollar on September 3, 2015, after the Central Bank of Brazil announced the previous day that it will keep interest rates on hold. The real has been among the worst performers across major economies around the world, reeling under the pressure of rising inflation and declining commodity prices.

A slowdown in China amid depressed global demand has also been weighing on the real. The real touched 3.8 levels against the US dollar. The political scenario also remains shaken as Brazil’s President Dilma Rousseff faces impeachment.

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Selic rate will be kept high to pull back inflation

The Central Bank of Brazil ended a string of seven consecutive hikes in the interest rate, also known as the Selic rate, by keeping it on hold at 14.25%. The central bank has been fighting vigorously against soaring inflation levels that stand at 9.56% in the month of July. Brazil holds the highest benchmark interest rates among the top ten major economies of the world. The bank said it plans to keep the rates high for a sufficiently prolonged period of time to pull inflation levels downward toward the target level of 4.5%.

Impact on the market

ETFs in Latin America were trading on a positive note on September 3, 2015. The iShares MSCI Brazil Capped ETF (EWZ) rose 1.21%, while the iShares Latin America 40 ETF (ILF) rose 1.39%.

Brazilian ADRs (American Depository Receipts) were also on a positive climb. Vale SA (VALE) rose 3.11%, while Companhia Siderurgica Nacional (SID) rose 2.02%.

Gerdau SA (GGB), however, ended negatively at -1.85% at the end of the day after making a big upward move of 10.20% the previous day.

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