BRAZIL FOREX WEEK- Fidgeting on key rates meetings
ReutersPlus, Monday, May 17, 1999 at 11:43
By Noriko Yamaguchi
SAO PAULO, May 17 (Reuters) - The Brazilian real market
<BRBY> should be jumpy this week with a tendency to weaken as
traders brace for two key interest rate meetings which could
slow foreign investment in the country, traders said.
Foreign exchange traders are nervous ahead of Tuesday's
U.S. Federal Open Market Committee (FOMC), the policy-making
arm of the Federal Reserve, which could raise interest rates on
the back of an unexpectedly high consumer price jump in April.
The U.S. Labor Department on Friday reported that the
Consumer Price Index (CPI) rose 0.7 percent in April, posting
its sharpest monthly gain since October 1990.
The Brazilian currency weakened after the news, with
investors worried inflation in the United States could lead to
higher interest rates, making high yields in emerging markets
such as Brazil less attractive.
"Brazilian markets hinge on the FOMC results this week,"
said Edson Barbosa de Souza, chief trader at Lloyds Bank in Sao
Paulo. "An increase in U.S. interest rates could mean less
foreign funds entering Brazil."
Pressure ahead of the meeting was already weighing on the
real in Monday morning trade, and the free-floating currency
traded at 1.667 per dollar, 0.66 percent weaker from its Friday
close.
Tuesday's FOMC results could also influence credit policy
shaped by top Brazilian Central Bank officials who Wednesday
hold a key policy-making monthly meeting known as the Copom.
The Central Bank last week reduced the reference rate on
the market's benchmark Selic, which sets the yield on half of
the government's domestic debt and serves as the basis for
consumer loan rates, to 27 percent from 29.5 percent.
The credit easing was the sixth such move in two months,
and the Central Bank has now shaved 18 percentage points since
it raised key lending rates to 45 percent following January's
wrenching currency devaluation.
The Central Bank was lowering the rates encouraged by lower
Brazilian inflation figures, and money market traders expected
the bank to slash rates yet again on Wednesday.
Economists and market watchers said Selic's reference rate
could be lowered to about 25 percent, or even lower depending
on local price data.
But currency players said Tuesday's FOMC results could
alter the picture a bit.
"Brazil's economic scenario could change depending on the
FOMC and performance in U.S. Treasury bonds," Lloyds' Souza
said.
Players in the local stock market, which had recently been
benefiting from stepped up foreign investment, were also
worried about the FOMC. The market's bluechip stock index
Bovespa (INDEX:$BVSP.X) lost 1.45 percent in early Monday trade.
saopaulo.newsroom@reuters.com))
Copyright 1999, Reuters News Service
|
