BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific
BBCi NEWS   SPORT   WEATHER   WORLD SERVICE   A-Z INDEX     

BBC News World Edition
    You are in: Business  
News Front Page
Africa
Americas
Asia-Pacific
Europe
Middle East
South Asia
UK
Business
E-Commerce
Economy
Market Data
Entertainment
Science/Nature
Technology
Health
-------------
Talking Point
-------------
Country Profiles
In Depth
-------------
Programmes
-------------
BBC Sport
BBC Weather
SERVICES
-------------
EDITIONS
 Thursday, 19 December, 2002, 18:40 GMT
Brazil opts for higher interest rates
Currency traders
A sell-off of the Brazilian currency has pushed up inflation
Brazil's central bank has raised interest rates for the third time in two and a half months in an effort to quell inflation.

It raised a key overnight rate to its highest level since April 1999, delivering a three-point increase to 25%.

The bank has raised rates three times since October, targeting rapid prices rises brought about by a steep fall in the value Brazil's currency, the real.

Left-wing president-elect Luiz Inacio Lula da Silva - known as Lula - has sought to calm international investors since he won October's poll, naming an ex-investment banker as his central bank chief.

More rises to come?

The real has lost one-third of its value this year.

As a result, imports have become more expensive and businesses have suffered from a rise in the cost of raw materials.

Brazilian stock traders
Business people are worried about rising costs

The real strengthened against the dollar after the central bank's decision on Wednesday, trading at 3.525 real per dollar.

However, analysts think more interest rate increases will be necessary.

"It's a very tricky and touchy situation, because if the raise didn't work at 22%, why would it work at 25%," said Christian Stacke, head of emerging markets research at CreditSights in New York.

Juggling problems

The rate rise will make borrowing more costly but businesses may find that an acceptable trade-off if the cost of supplies stops rising.

"If you don't buy now, you lose because prices will rise in a matter of days," said Getulio Osaka, commercial director of supermarket trolley marker Artefatos Arame Artok.

"Something has to be done to stop this situation."

However, higher borrowing costs will also make it more expensive for Brazil to make repayments on international loans.

Since Argentina's $141bn debt default a year ago, international investors have fretted that Brazil might be next.

IMF praise

But the International Monetary Fund (IMF) has shown its confidence in Brazil by granting a record $30bn aid package, the second tranche of which was paid out on Wednesday.

On Thursday the IMF's managing director Horst Koehler praised Brazil's performance under the Fund's programme, saying it had been "exemplary".

He added that as confidence in Brazil's economy was restored, inflation was expected to fall over the next few months.

"In this context, early progress in the on-going discussion in Brazil for securing of the central bank's operational autonomy will provide important support to enhancing the credibility of monetary policy," Mr Koehler said.

The incoming head of the central bank, Henrique Meirelles, has said the new government will attach great importance to getting inflation lower.

  WATCH/LISTEN
  ON THIS STORY
  Micheil Haradom, Brazilian businessmen
"This really makes the whole of industry think twice before making new investments."
See also:

10 Dec 02 | Business
11 Nov 02 | Business
05 Nov 02 | Business
01 Nov 02 | Business
29 Oct 02 | Americas
Internet links:


The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.


E-mail this story to a friend

Links to more Business stories

© BBC ^^ Back to top

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East |
South Asia | UK | Business | Entertainment | Science/Nature |
Technology | Health | Talking Point | Country Profiles | In Depth |
Programmes