Brazil gov't, central bank 'alarmed' by weaker currency-report

Thu Dec 6, 2012 6:41am EST

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* Central bank worried by recent drop, Valor says

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* Renewed inflation fears behind recent measures

SAO PAULO, Dec 6 (Reuters) - Brazilian government and central bank officials are concerned that the recent depreciation of the country's currency could stoke inflation, leading to recent steps to gradually dismantle some capital controls, newspaper Valor Econômico reported on Thursday.

Valor, citing unnamed sources, said policymakers are alarmed by the exchange rate's recent levels, after the currency slipped past 2.13 per dollar this week. Contrary to the view of many investors and analysts covering Brazil's foreign exchange market, officials do not want to sanction any particular exchange rate, the newspaper added.

The report highlights competing concerns about Brazil's currency, the real. The government has worked to weaken the real by more than 10 percent this year in order to bolster exports and support a fragile economic recovery.

The currency plunged to its weakest in over 3-1/2 years after surprisingly weak growth data last week, bolstering worries that more expensive imports would speed inflation.

The newspaper said that in terms of the currency policy, "the message that is being transmitted is different," meaning that a weaker currency could hamper investment and hurt companies with heavy dollar debt.

This week the government began to ease restrictions on capital inflows, namely the imposition of tax surcharges on foreign corporate borrowing transactions and barriers to the entry of export revenue into the country.

In addition, traders began to test what has been understood as the currency's trading range allegedly defended by the government at a moment of rising seasonal demand for dollars, Valor said. The real traded at 2.085 per dollar in early Thursday trading, 0.5 percent stronger than at Wednesday's close.

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