Brazil interest rate hike not enough - economists
Reuters, Sunday, September 06, 1998 at 11:09
SAO PAULO, Sept 6 (Reuters) - Brazil's decision on Friday
to raise interest rates is a short-term solution that does not
protect Brazil from a possible financial crisis, according to
economists interviewed by a daily newspaper on Sunday.
The measure, aimed at stemming a flood of dollars out of
the country, could actually unnerve investors even more, 15
economists told Folha de S. Paulo newspaper.
On Friday, the Central Bank said it will temporarily lend
money at its Tban assistance rate of 29.75 percent, and not at
its traditional TBC prime lending rate, which was just cut to
19 percent.
The measure ultimately raised the basic lending rate in
Brazil to about 30 percent until September 30. Economists said
the Central Bank was hoping to plug the flow of dollars out of
the country.
Traders estimate that some $5 billion fled the country in
net outflows from the foreign exchange market last week,
putting a drain on international reserves.
At the end of August, a Central Bank official said that
reserves only lost about $3 billion during the month despite a
big outflow of $6.693 billion from forex markets. The Central
Bank has not given a recent estimate of reserves.
"The government preferred not to fool around before
elections, but the loss of reserves could be devastating," said
Celso Pinto in a column in Sunday's Folha.
While the economists interviewed by Folha said the measure
could stem the flow, it will not attract new investments and
could have very negative affects on the public deficit and
economic growth.
"The cost of federal debt is going to rise considering that
60 percent of it is indexed to the overnight interest rate,"
Pinto said in his column. He said the government could pay an
extra $8 billion to finance its domestic debt.
Some economists said the government will have to come up
with more financial policy changes and perhaps even seek
outside help if it wants to fend off a crisis.
Copyright 1998, Reuters News Service |
