Brazil Faces Key Day After Boosting
Interest Rates
By GERALDO SAMOR
Dow Jones Newswires
RIO DE JANEIRO -- Four years of hard-won economic stability will be
put to the test Friday, as Brazil wakes up to a trading session that may
define whether its currency holds.
Dollar and interest rate futures shot higher at Friday's opening, and stocks
plunged 2.6% in the early going after the Central Bank, in a surprise move
late Thursday night, boosted the interest rate at which it lends to banks to
49.75% from 29.75%. By 1345 GMT, stocks had reversed course and
Sao Paulo's Bovespa index was up 3.8%; interest rate futures had also
given up some of their early gains.
Analysts say the Central Bank felt pressed to take action after the
country's foreign-exchange markets posted a net outflow of $1.8 billion
Thursday.
Since September began, more than $11 billion have left the country,
dragging reserves to $52 billion now from $70 billion in early August.
The loftiness of the figures is a measure of the turmoil that has engulfed
Latin America's largest economy since the year-old Asian financial crisis
turned investors attention to Brazil's expanding fiscal deficit and worrisome
current-account balance.
The decision came just hours after President Fernando Henrique Cardoso
told reporters that, if it depended on him, interest rates wouldn't go up any
further because they are already too high.
Minutes before the Central Bank's announcement, radio stations were still
broadcasting those comments, which Cardoso, who's up for re-election
Oct. 4, made even as local stock exchanges plunged 15%. |
