Photo: Palácio do Planalto, Brasília, Wikimedia Commons, public domain. Image resized.
Brazil’s currency and stock market suffered some of their steepest one-day losses in decades on Monday after President Luiz Inácio Lula da Silva won a fourth term, reversing positions investors had built on the expectation that his challenger, Flávio Bolsonaro, would win.
The dollar closed at 5.403 reais, up 8.21% on the day, according to market figures reported by Agência Brasil, the government’s news agency. That was the largest one-day gain for the dollar against the real since Jan. 13, 1999. The currency touched 5.6049 per dollar in the morning before recovering part of the move as exporters sold dollars and traders took profits. Even after the jump, the dollar is still down 1.57% against the real for 2026.
The Ibovespa, the main index of the São Paulo stock exchange, fell 13.88% to 176,608.23 points, its biggest daily decline since March 2020 and its lowest close since Aug. 31. Trading halted briefly in the morning when the exchange’s circuit breaker, a built-in pause for sharp drops, was triggered. At its low, the index was down more than 17%. The Ibovespa is still up 9.61% for the year.
How Lula won
Brazil’s electoral court, the TSE, counted 100% of the ballots in Sunday’s runoff. Lula received 51.79% of valid votes, or 64,256,232, against 48.21% for Bolsonaro. Bolsonaro had led the first round on Oct. 4. Lula becomes the first candidate in Brazil’s history to win a runoff after trailing in the first round.
Why investors reacted
Markets were reacting to concern about Brazil’s public finances. Gross general government debt, the central bank’s broadest measure, stood at 82.9% of the country’s economic output in August, up from 82.6% in July, according to the Banco Central do Brasil. The consolidated public sector ran a primary deficit, meaning spending other than interest exceeded revenue, of about 10 billion reais that month.
The government’s 2027 target is a primary surplus of 0.5% of GDP, with a tolerance of 0.25 percentage points. The budget proposal currently projects an actual surplus of about 18.6 billion reais, roughly 0.13% of GDP, according to government budget figures. Earlier this month, the Planning and Budget Ministry said it planned to shift about 20 billion reais within the 2027 budget to pay for economic stimulus measures announced recently.
The government’s response
Finance Minister Dario Durigan said on Monday the government will pursue a higher primary surplus next year, though he did not give a figure. He also said the administration plans to change fiscal rules before the end of 2026, and he authorized the National Treasury to buy back government bonds to restore normal trading as yields rose. Durigan said he had spoken with Lula, central bank president Gabriel Galípolo and Treasury officials. Bond buybacks help trading run smoothly but do not by themselves cut spending or improve the budget balance.
For Brazilians, a weaker real makes imported goods, fuel and many food inputs more expensive, and higher government borrowing costs can feed through to loans and mortgages. For foreign investors holding Brazilian stocks and bonds, the currency drop adds to their losses when converted back to dollars.
Sources: Agência Brasil market report of Oct. 26; Brazil’s Superior Electoral Court (TSE) final tally; Banco Central do Brasil fiscal statistics for August; Brazilian Finance Ministry statements of Oct. 26.
JBizNews Desk | Brasília
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