Fearing Inflation, Brazil Raises Interest Rates to 17.75%

Inflation


Brazilian markets ended modestly higher, helped by some modest gains on Wall Street. Additionally, the markets were able to advance despite a sharp increase in oil prices following the latest U.S. inventory data. In Brazil, attention was fixed on the central bank’s decision on monetary policy, which came out after the close of trading.

Brazil’s benchmark Bovespa Index edged up 12.70 points or 0.05%.


Leading off, the United Nations’ Economic Commission for Latin America and the Caribbean said that growth for the region will be about 5.5%, well above many earlier forecasts.


Demand for raw materials from China and the U.S. was helping to propel growth in the region. The group sees more moderate growth of 4% for the region in 2005.


Brazilian stocks rose modestly, as investors awaited the central bank’s interest rate decision. After the close, the central bank raised interest rates by 50 basis points to 17.75% in order to contain inflationary pressures.


There was some hope that signs of moderating inflation may allow the central bank to raise rates by a smaller amount.


Meanwhile, October retail sales were up 8.5% compared with the year ago period, according to the Brazilian government.


The result marked the eleventh straight monthly year-on-year increase amid a surge in Brazil’s economy following last year’s stagnation. The rise in retail sales was down from September’s 9.3% increase.


On the corporate front, CVRD was active after the company announced plans to buy back US$ 198 million, or 62.3%, of its US$ 300 million 2007 bonds. The iron ore firm said it is taking advantage of current strong cash flows to lower debt and strengthen its balance sheet.


Also, struggling airline Viação Aérea Rio Grandense (Varig) surged after the government said it will take control of the troubled airline by the end of the week as part of a plan to restructure the company’s US$7 billion in debts.


In research notes, a major U.S. investment bank upgraded shares of Eletropaulo to “neutral” from “underweight.” Also, another investment bank named Telesp and Telesp Celular its top picks in Latin America for 2005.


Thomson Financial Corporate Group
www.thomsonfinancial.com


PRNewswire

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