Brazil's Malan says rate rise may be needed
Reuters, Wednesday, January 13, 1999 at 17:43
SAO PAULO, Jan 13 (Reuters) - Brazilian Finance Minister
Pedro Malan admitted on Wednesday that the government may have
to resort to an interest rate tightening to defend its new
wider fluctuation currency regime.
"In the very short term, maybe there will be some need for
an interest rate increase to defend the new arrangement," Malan
said in interview with Reuters Financial Television.
Malan reiterated that the increased flexibility in the
exchange band, which produced an 8 percent devaluation in the
currency Wednesday, gives the government more freedom for lower
interest rates. But rates reductions are only possible with
progress on the fiscal front.
The greatest risk to Brazil's future, Malan said, is
failure to follow through on its fiscal austerity plan, which
is in the final stages of congressional approval.
Malan said the real's depreciation to the top of its new
broad band of 1.20-1.32 was "not unexpected" on its first day
of trading with the new regime.
"One point to note is at the end of the day, the exchange
rate was slightly below the ceiling, indicating there were
people buying foreign exchange from the government," he said.
He refused to say how much of the $45 billion in reserves
the government would spend to defend the currency.
But he noted that he does not expect the large daily
capital outflows, estimated at more than $1.5 billion on
Wednesday, to continue for "an indefinite period of time."
"I think this is the unsettled of the first day of
operation," he said.
Copyright 1999, Reuters News Service
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