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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Debra Orlow who wrote (4039)	1/15/1999 9:14:00 AM
From: Moominoid	Read Replies (3) \| Respond to of 99985

There is a trade off in exchange rate. Letting the currency fall means you can drop interest rates to boost the domestic economy but imports rise in price and so raise inflation and reduce the buying power of the domestic population. On the other hand the lower exchange rate is a bonus for exporters and that boosts the economy. Theoretically the trade deficit should narrow and the need for foreign financing of investment will reduce etc. I think the main consideration in Brazil has been the need to slash government expenditure which is deflationary. If interest rates remain high to defend the currency then a deep recession is inevitable. In order to make fiscal austerity more palatable they have to drop interest rates. That's my reading....