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Strategies & Market Trends : Telebras (TBH) & Brazil -- Ignore unavailable to you. Want to Upgrade?

To: Steve Fancy who wrote (22398)	7/17/2001 3:07:48 PM
From: Steve Fancy	Respond to of 22640

SURVEY: Brazil Ctrl Bk Seen Hiking Rates On Forex Worry Selic rate history: June 20 May 23 Apr 18 Mar 21 Jan 17 Dec 20 18.25% 16.75% 16.25% 15.75% 15.25% 15.75% By Anthony Dovkants Of DOW JONES NEWSWIRES SAO PAULO -- Faced with a weakening local currency and growing inflation pressures as markets fret about Argentine contagion, Brazil's central bank is expected to raise interest rates Wednesday for the fifth time in as many months. Brazilian monetary authorities are seen raising the key Selic lending rate by 150 basis points to 19.75% after their monthly meeting, according to a Dow Jones Newswires' survey of 14 financial institutions this week. Forecasts varied greatly, however. While the majority of economists' predictions were clustered between a 50 to 175 basis point increase, some believe that interest rates could be raised to as much as 25% - despite the fact that the central bank has an easing bias in place. Heightened concern about the impact of a possible debt default in neighboring Argentina pushed Brazil's currency to a new intraday low Monday of BRR2.606 to the dollar. The real rallied early Tuesday to BRR2.535 after Argentine opposition governors threw their support behind spending cuts, but the Brazilian currency is still down 23% on the year against the dollar. A local energy crisis and political instability have also hurt the real, but Argentine concerns have dominated again recently. Reflecting investor nervousness, the yield on Brazilian money market rates has shifted higher with futures contracts now projecting interest rates at about 21% by the end of August and 25% by the close of October. Economists believe a large rate hike is also in order for the central bank to bring inflation under control after the 12-month IPCA Broad Consumer Price Index registered a 7.35% increase to the end of June. "CPI inflation now has already breached the tolerance range implied by the year-end official annual targets of 6.0% for 2000 and 4.0% for 2001," said Marcelo Carvalho, chief economist with J.P. Morgan Chase in Sao Paulo. The official targets have a leeway of two percentage points in either direction. So far, Brazil's central bank has raised the benchmark short-term interest rate by 300 basis points since March to try and meet its inflation target - including a higher-than-expected hike of 150 basis points at last month's meeting. The inflation scenario is worrisome because an average exchange rate of BRR2.40 in the second half of the year could cause the inflation rate to finish the year at 7%, according to a preliminary forecast by Credit Suisse First Boston. A possible default in Argentina would make matters even worse, with some currency analysts saying such a development could push the real to BRR3.00 to the dollar. Default or not, the tightening cycle is expected to continue despite signs that South America's biggest economy has started to slow following the recent interest rate hikes and the negative impact of an electricity rationing plan launced June 1. Companies, shops and families are being required to cut back on electricity use by 20% on average for at least six months. Most economists believe the measure will trim this year's economic growth rate to 2.5% from an initially-forecast 4% to 4.5%, while also cutting into 2002 growth. Brazil's monetary policy council, known as Copom, begins its two-day meeting Tuesday. It's expected to announce its Selic rate decision after financial markets close Wednesday. -By Anthony Dovkants, Dow Jones Newswires; 55-11-3145-1478; anthony.dovkants@dowjones.com