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

To: John Soileau who wrote (11980)	1/19/1999 1:30:00 AM
From: chirodoc	Read Replies (2) \| Respond to of 22640

Brazil pushes up interest rates as real keeps falling TUESDAY JANUARY 19 1999 Brazil crisis By Geoff Dyer in São Paulo The Brazilian central bank announced a surprise increase in interest rates last night in an attempt to calm investors after the Real weakened further against the dollar during trading yesterday. Directors of the central bank held an impromptu meeting to discuss interest rates when the markets closed yesterday. They had earlier confirmed they would let the currency float, but would intervene in an "occasional and limited form" if there were any "disorderly" movements. The decision to maintain the floating rate came after Brazil on Friday became the latest emerging economy to abandon a currency peg against the US dollar in the face of a new speculative attack which began last week. Since August, the country's reserves have fallen by more than $40bn in an attempt to defend the fixed-rate regime, which had been the centrepiece of the government's anti-inflationary strategy. The Real weakened yesterday to close at R$1.59 to the dollar, 10 per cent down on Friday's close. However, share prices on the Bovespa index, which soared 33.4 per cent on Friday on news of the float, rose to close a further 5.4 per cent up, as equity investors continued to believe that the devaluation would permit interest rates to fall sharply. The central bank said its decision to raise the prime lending rate from 36 per cent to 41 per cent, which is valid until March 3, was designed "to minimise excessive exchange rate volatility and consolidate price stability". The central bank's decision came after Pedro Malan, finance minister, said yesterday that interest rates might have to rise in the short term to limit inflationary pressures from the devaluation, which has seen the Real weaken by more than 25 per cent over the last week. Speaking in Washington after three days of meetings with officials from the International Monetary Fund and US government, he said: "The only way interest rates will fall is through progress on the fiscal programme." Additional budget cuts would be made if needed, Mr Malan added. Odair Abate, chief economist at Lloyds Bank in São Paulo, said: "His comments are an indication that the government's priority will be to control inflation." Some analysts believe the level of interest rates will become the subject of an intense political battle. Mr Malan admitted that the terms of Brazil's $41.5bn aid package, led by the IMF, would need revision, but said the government was not seeking an early release of the second tranche of money, which will be available in February. Michel Camdessus, managing director of the IMF, said a delegation from the Fund would shortly be visiting Brazil to establish "a new macroeconomic and monetary framework". Fund officials also believe that high interest rates could be required to stabilise the currency