Brazil’s government is ready to prevent the exchange rate from having exaggerated gains, Finance Minister Guido Mantega said today, after the real this week strengthened to beyond 2 per dollar for the first time since July.
The real shouldn’t be used as a tool to reduce prices, and a weaker currency helps make domestic industry more competitive, Mantega said.
Brazil’s exchange rate had the third-biggest gain amid major currencies this year as traders anticipated the central bank would allow the real to strengthen in a bid to tame consumer prices. Today, after Mantega said the policy adopted since 2010 of keeping the currency weaker isn’t changing, the real reverted earlier gains and dropped.
“If there’s an exaggeration in the exchange rate, we are here to fix it,” Mantega said today during an event in Brasilia. “It’s a policy that won’t allow a speculative appreciation of the real. I alert the navigators: it’s here to stay, don’t get excited.”
The currency was free to float, as long as it remained at a level that benefited Brazilian industry, Mantega said.
The real weakened 0.1 percent to 1.9879 per U.S. dollar at 3:49 p.m. local time, its first drop in six days. The currency pared an earlier 0.7 percent decline after the central bank held a dollar auction.
The real has gained 3.2 percent this year, the best performer among the 16 most traded currencies.
Brazil would also not use the currency as a policy to contain inflationary pressure, Mantega said, predicting that this week’s 6.6 percent gasoline price increase at refineries would add 0.16 percentage point to the IPCA consumer price index.
Brazil’s broadest measures of inflation slowed less than analysts expected in January, the Getulio Vargas Foundation said today. Wholesale, consumer and construction prices, as measured by the IGP-M price index, rose 0.34 percent this month, down from a 0.68 percent jump in December.
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