Brazil raised its benchmark interest rate on Wednesday to 7.50 percent from an all-time low of 7.25 percent, in an attempt to tame persistently high inflation. But apparently, this was not the main talk of the day within trading desks.

We have said time and time again, inside information in Brazil does not seem to be a crime. At least to the bureaucrats on top.

A note published by blog Alerta Total accused “a large industrial group of having used insider information to reverse (days before the official interest rate hike was announced) a significant bet on interest rates maintenance.”

It said the company (which the tipper claims to be JBS “Milking-The-BNDES” Friboi) had begun to reverse its position before the finance minister Guido Mantega and CB president Alexandre Tombini made the speech reaffirming the government’s willingness to raise rates.

This all means that JBS Friboi started betting on rising interest rates a bit ahead of other investors in the futures market. The statements made by Mantega and Tombini later caused a sharp rise in interest rate futuresĀ (a bit after the privileged company made its bets). The text makes direct accusations to Mantega and the government citing a “market fox” that tipped the blog.

For one experienced market executive this is not the first time it had happened, many companies do it, but the difference is that JBS Friboi “acts so coarse, without worrying about possible reactions or impunity because the leak investigators are part of the government as well.”

One trader confirmed that there was a strange “large volume” move that drew everyone’s attention. “It’s not every day that you see someone buying 200,000 of such contracts in a matter of 2 minutes when the market is so quiet,” he says.

The trader also said that the odd move was that the company went from having 250 000 contracts betting on interest maintenance to switching drastically to 200,000 contracts betting on a rate hike, a few minutes before the government officials spoke in an event sponsored by this same company (see picture with the company logo).

Want to invest in Brazil? Find someone inside the government to “help you out”…

Source: Alerta Total, Exame

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