Brazil's high jobless rate seen prompting rate cut
Reuters, Wednesday, March 04, 1998 at 22:04
SAO PAULO, March 4 (Reuters) - Brazil's
steeper-than-expected interest rate cut on Wednesday was
motivated in large part by the country's worrying jobless rate,
which soared to a 13-year high in January, economists said.
The central bank cut Brazil's prime lending rate to an
annualized 28 percent from 34.5 percent Wednesday. The new rate
is effective from March 5 to April 15.
Before the release of unemployment data Wednesday,
economists had forecast a cut to between 30 percent and 31
percent.
"Without doubt, the high unemployment figure had a lot to
do with the decision to make an aggressive cut," said Dany
Rappaport, chief economist at Santander in Brazil.
"This surprised me," Rapport said, noting he had forecast a
reduction to 31 percent.
Earlier Wednesday, the government's National Statistics
Institute (IBGE) said unemployment rose to 7.25 percent in
January from 4.84 percent in December, fueling fears the
economy was heading into recession.
Economists had expected the jobless rate to grow in the
first quarter because of a tough fiscal package and a
near-doubling of interest rates late last year to protect the
local currency against speculators.
But the sharp rise was beyond all forecasts.
Also supporting the large cut was a record inflow of
dollars in February and prospects of steady dollar flows
throughout the year, thanks to an extensive privatization
program, economists said.
Dollar flows increase confidence in the government's
foreign exchange regime because they boost hard currency
reserves, which are used to protect the local currency.
"The unemployment figure today, record dollar inflows and a
lower-than-expected trade balance in February were all
associated with this cut," said Odair Abate, chief economist at
Lloyds Bank in Brazil.
E-mail: john.miller@reuters.com
Copyright 1998, Reuters News Ser |
