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Markets, currency rally on Lula detention
March 8, 2016, 6:39 pm

Lula has insisted he is innocent of graft allegations and said that his detention was politically motivated [Xinhua]

Lula has insisted he is innocent of graft allegations and said that his detention was politically motivated [Xinhua]

Markets in Brazil have reacted positively to the news that former President Luiz Inacio Lula da Silva was detained for questioning for his alleged role in the Petrobras scandal which has had significant political fallout in the past 18 months.

Lula insists he is innocent and lashed out at his accusers, saying the allegations against him were politically motivated.

On Tuesday, the Brazilian real was outperforming other Latin American currencies coming in at 3.76 to the US dollar.

On Friday, when Lula was detained on alleged bribery charges and bid-rigging, the real jumped to its highest level in six months against the greenback coming in at 3.68.

The benchmark Ibovespa Brasil Sao Paulo Stock Exchange Index, which had been slowly gaining leverage since February 11, surged on news of Lula’s detention.

It jumped from 47,195 on the day before he was questioned to 49,850 on March 7.

On Tuesday it opened down 0.015 per cent. At press time, it was down 0.08 per cent at 49,200 largely on poor Chinese economic data and yet another fall in oil prices.

This is the Ibovespa’s best performance since a late February ratings downgrade from Moody’s Investors Services, which had at the time warned that further cuts were possible in the months ahead.

On February 24, the Ibovespa stood at 41,582 battered partly by Brazil’s economic contraction which this year was revised from 3.3 to 3.4 per cent.

The Banco Central do Brasil (BACEN) – has since January several times revised downward the 2016 economic growth rate.

Brazilian markets have rallied every time an investigation into a corruption involving state oil and gas giant Petrobras appears to make ground.

The corruption scandal has implicated politicians in President Dilma Rousseff’s party, although not the president herself.

Rousseff was chairwoman of the Petrobras’ board at the time of the 2006 purchase of a oil refinery in Texas and the opposition members are now using it to weaken Rousseff’s

Brazil’s state oil giant Petrobras estimates it paid out some 6 billion reals ($1.6 billion) in illegal “commissions” as part of a corruption scheme that operated for years.

As the purchase of the US refinery in Pasadena took place while Rousseff was on the company’s board, the scandal has debilitated her personal approval ratings although she easily won reelection in October 2014.

The BRICS Post with inputs from Agencies

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