U.S. Fed disappoints Latam markets with rate cut
Reuters, Tuesday, September 29, 1998 at 20:27
By Michael Christie
MEXICO CITY, Sept 29 (Reuters) - Latin American markets,
torn by weeks of turbulence amid a loss of faith in emerging
markets and devaluation fears, on Tuesday swallowed an expected
U.S. interest rate cut with a measure of disappointment.
Hoping for, but not necessarily expecting, something more
ambitious than the Federal Reserve's quarter-point cut to 5.25
percent in a key interest rate, most regional markets succumbed
to profit-taking while others posted only marginal gains.
"A very high percentage in the market had discounted a
scenario of cuts in U.S. interest rates," said Hector Jimenez,
head of research at Inverlat brokerage in Mexico, where the IPC
<.MXX> index slumped 1.0 percent to close at 3679.91 points.
Remarks by Fed Chairman Alan Greenspan over the past week,
hinting at the rate cut, had fed Latin American optimism that
further financial hurricanes could be avoided by policies
stimulating growth in the United States.
The prospect of cheaper borrowing in the United States,
combined with talk of a global finance package for emerging
markets, helped ease recent outflows of dollars from Brazil
and, temporarily, at least, eclipsed fears that Latin America's
economic powerhouse may be forced to devalue.
Last week the rate cut hopes fueled share price rises
across the region. When it actually came through, there was
little else to do but sell until the next positive or negative
news came along, either from an International Monetary Fund
(IMF) and World Bank meeting in Washington this weekend or
presidential elections Oct. 4 in Brazil, traders said.
"This (rate) cut will greatly relieve investors but it does
not imply the crisis is over," said Ismael Vazquez of Peru's
Progreso brokerage.
In Brazil, shares initially plunged 2.0 percent on the
Federal Reserve move. Sao Paulo's Bovespa (INDEX:$BVSP.X) index then
recovered to end 0.61 percent higher at 6869 points after
traders decided they had reacted too negatively.
"The market reacted with nervousness, but soon realized
that the fall was exaggerated," said one.
The Brazilian central bank's director of international
affairs, Demosthenes de Pinho Neto, told reporters the rate cut
"was absolutely within expectations".
Brazilian Finance Minister Pedro Malan has led Latin
American calls for Washington's financial authorities to play
their part in staving off further financial crises after Asian
and Russian devaluations.
Lowering U.S. rates is expected to make investors more
willing to assume the risk of emerging market investments,
attracting wary foreign capital back into Latin America.
In Argentina, remarks by officials that the rate cut was
"very positive" did not prevent the MerVal <.MERV> share index
from ending 0.57 percent lower at 397.42 points.
Chilean stocks also ended slightly off, with the IPSA
<.IPSA> index down 0.18 percent at 66.25 points.
Lima stocks posted losses too. The General Index <.IGRA>
there fell 1.32 percent to 1260 points.
By contrast, Colombian shares ended higher on Tuesday for
the sixth consecutive session, with the IBB <.IBB> closing up
0.83 percent at 858.48 points, a positive note echoed in
Caracas where the IBC <.IBC> rose 0.8 percent to end at 3754
points.
Copyright 1998, Reuters News Service |
