Brazil currency plunges amid uncertainty

Brazil's currency and stocks continued to fall last night over uncertainty about the appointment of a new finance minister…

Brazil's currency and stocks continued to fall last night over uncertainty about the appointment of a new finance minister.

The Brazilian real plunged 1.8 percent against the dollar and stocks on Sao Paulo's benchmark Bovespa index fell 2.5 percent the day after Finance Minister Antonio Palocci resigned and was replaced by Guido Mantega, president of Brazil's National Development Bank.

Repeated pledges by Mantega to maintain President Luiz Inacio Lula da Silva's tight monetary policy - which is aimed at taming inflation and setting the country on a path of slow and sustainable growth - did little to reassure jittery investors.

Their biggest concerns: That Mantega may reduce sky-high interest rates too quickly to keep inflation, currently at 5.5 percent, in check, and may increase government spending to boost economic growth as Silva prepares for his anticipated re-election bid.

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Elections are in October, and analysts say opposition leaders are sure to use the new scandal to try to hurt Silva and his Workers Party. That could force Silva to court his leftist base with populist economic policies loathed by financial players and Wall Street.

"The larger repercussion of Palocci's ouster will be in growing concerns over where a hypothetical second Lula mandate will be headed," said Christopher Garman, a Latin America analyst with the Eurasia Group. "This year's presidential election has become market-moving."