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

To: Steve Fancy who wrote (7437)	9/3/1998 6:16:00 PM
From: Steve Fancy	Respond to of 22640

Brazil cenbank's new rate policy called flexible Reuters, Thursday, September 03, 1998 at 17:24 By Joelle Diderich BRASILIA, Sept 3 (Reuters) - Brazil's central bank gave itself more room to tweak interest rates in response to global market turmoil by widening the space between the floor and the ceiling for market rates, economists said on Thursday. The Central Bank's Monetary Policy Committee (Copom) said Wednesday it cut the prime lending rate to an annualized 19 percent from 19.75 percent, but it raised the basic assistance rate to an annual 29.75 percent from 25.75 percent. "The Central Bank has made its monetary policy more flexible," said Pedro Thomazzoni, chief trader in derivatives and capital markets at Lloyds Bank in Sao Paulo. "It has increased its scope for intervening in the market." Although analysts expected no immediate change in the overnight rate, they said the Central Bank in theory could intervene to make the rate fluctuate anywhere between 19 percent and 29.75 percent to cope with external shocks. "If there is a problem restricting banking liquidity, for instance dollar outflows increase or the crisis worsens, then the overnight rate rises," explained Marcelo Allain, chief economist at BMC Bank. "Previously you would have had to hold a Copom meeting. Now rates can rise 10 percent without any big problems," he added. However, economists agreed hiking rates would be a last-ditch measure to bolster Brazil's currency reserves and protect the local currency, the real, from speculative attack. The Central Bank had been widely expected to lower the prime lending rate, despite pressure to attract foreign capital amid a global rush out of emerging markets in the aftermath of Russia's economic crisis. But analysts noted that by increasing the basic assistance rate, the central bank raised the ceiling for the overnight rate, used locally as an indicator of the effective level of official rates. The Central Bank has been testing the market with daily interventions in the open market, which in recent months have replaced the Copom meetings as a focus for traders and investors seeking an indication of future Brazilian rates. In the daily auctions, called "go-around", the Central Bank has set an unspecified number of overnight repurchase agreements paying a rate below the current prime lending rate to drain liquidity from the market. The Central Bank on Monday agreed to pay an overnight call money rate of 19 percent a year for the securities. But it has failed to hold a "go-around" since, in an indication it wishes to hold the overnight rate steady at that level. Brazil needs healthy cash reserves to defend the real, widely considered overvalued by between 10 percent and 30 percent. Foreign currency reserves according to the international liquidity concept -- which includes accounts receivable -- totaled $70.21 billion in July, but the cash stock took a hit in August as dollars fled for the safety of U.S. Treasuries. The Central Bank said foreign reserves, as measured by the liquidity concept, fell around $3 billion in August, though some economists said actual losses could be twice that level. Raising rates would sharply inflate the government's debt servicing cost, a heavy contributor to a fiscal deficit estimated at an annualized 7 percent of gross domestic product (GDP). This is particularly true since the government in June resumed selling financial instruments known as "postfixed letters", in an effort to calm domestic market unease about international turmoil and local political concerns. The instruments pay rates set after they mature, based on the average overnight benchmark rate in the period, which protects investors from interest rate fluctuations in the period. Brazil now has some 60 percent of its domestic debt stock indexed to the overnight rate, said Constantin Jancso, economist at consulting firm MCM. "The effect of a rate increase on the fiscal accounts could be so bad that it could have a negative impact on investor confidence," he said. joelle.diderich@reuters.com)) Copyright 1998, Reuters News Service

To: Steve Fancy who wrote (7437)	9/3/1998 6:21:00 PM
From: Steve Fancy	Read Replies (8) \| Respond to of 22640

Brazil sells fewer LBCs at its weekly auction Reuters, Thursday, September 03, 1998 at 17:30 SAO PAULO, Sept 3 (Reuters) - Brazil's Central Bank on Thursday sold a lower-than-average 340 million reais worth of 728-day, post-fixed Central Bank Letters (LBCs) at its weekly auction, dealers said. Dealers speculated that the Central Bank sold fewer papers because it was not ready to pay a premium wanted by banks due to global financial turmoil. The notes also carried a longer than usual maturity. The Central Bank had been selling LBCs with a 91-day maturity in the last few months. Analysts said the longer-term LBC may have been issued to make the paper more attractive to investors. However, if that was the Central Bank's intention, it may not have worked since it sold less paper in the end, dealers said. At Thursday's auction, the Central Bank sold the 728-day LBCs at the average annualized benchmark overnight rate in the Sept. 4, 1998--Sept. 4, 2000 period, dealers said. On Sept. 2, the overnight rate was 19.11 percent a year. Post-fixed letters carry less risk for investors than letters paying pre-fixed rates. The LBCs' pay rates are set after they mature, based on the average overnight benchmark rate for the period. Dealers also speculated that the sale of fewer LBCs could be an attempt by the Central Bank to keep liquidity high in the banking system and prevent pressure on overnight interest rates. Thursday's auction result indicated that about 1.46 billion reais will be added to the banking system as some 1.8 billion reais in old LBCs are coming due on Sept 4. Copyright 1998, Reuters News Service