* Cbank chief Tombini says ready to increase supply of
* Tombini says central bank has no official currency band
* Real gains, analysts divided on ceiling of FX band
By Tiago Pariz and Alonso Soto
BRASILIA, Nov 22 Brazilian policymakers stand
ready to protect the local currency from speculative bouts,
central bank president Alexandre Tombini said on Thursday,
signaling it will not allow the real to weaken too much, too
In particular, he added, the central bank may "provide
temporary liquidity" to the foreign exchange market at the end
of the year, when demand for dollars often increases and supply
falls -- weakening the real.
"That is a move that tends to revert itself right at the
beginning of the (new) year," Tombini said at a congressional
Investors have dragged down the value of the real in the
past two weeks, pushing it to the limit of what is considered an
informal trading band of 2.0-2.10 per dollar, and testing the
central bank's tolerance to a weaker currency.
Tombini vehemently denied that the central bank is working
with a trading range, but vowed to defend the currency to keep
forex markets working properly.
"We have no exchange rate target. We have a floating rate
and we will always take steps to avoid Brasil becoming a market
for devalued currencies competing against our currency," he
The real firmed 0.15 percent to 2.091 per
dollar after Tombini's comments. It closed Wednesday at 2.0944,
its weakest level in three-and-a-half years, after investors
interpreted comments by President Dilma Rousseff as a signal
that she was ready to loosen the band in which the real has been
stuck since July.
Her comments, made in an interview to a local newspaper,
were seen as suggesting the government could let the real weaken
beyond 2.10 per dollar to help the local industry become more
Tombini's remarks, on the other hand, reminded investors
that the central bank will continue to intervene in the market
to avoid sharp currency moves.
"We have more comments from an important member of the
government saying that forex policies have not changed: We still
have a floating exchange rate with interventions," said Roberto
Padovani, chief economist with Votorantim Corretora in Sao
There was a divide among analysts over whether Tombini's
comments meant the central bank will keep defending the level of
2.1 per dollar, as it has done in the past.
INFLATION VS ECONOMY
For over a year now, Rousseff has battled to prevent the
real from appreciating, in an attempt to protect a local
industry struggling with cheap imports from places like China.
Rousseff has blamed the strengthening of the real beyond its
fundamentals on rich nations unleashing trillions of dollars
into markets -- in what she dubs a global "currency tsunami".
Government interventions in the currency, which included
raising taxes on foreign investors, have helped weaken and
stabilize the real in a tight range of 2.0-2.1 per dollar in
However, at the current level, the real has yet to help the
industry get out of its hole and bolster an economy that risks
entering into a new era of mediocre growth.
Rousseff's administration believes a slightly weaker real
could further help the economy regain growth rates above 4
percent that made Brazil a Wall Street favorite in past years.
Some economists worry that a weaker real could push
inflation higher next year by increasing the price of imports.
Still, Tombini reiterated on Thursday that inflation was
under control and that the monetary authority will remain
vigilant on price rises.
The central bank is expected to end a year-long rate-cutting
cycle when it meets on Nov. 28, leaving its benchmark Selic rate
unchanged at its current record low of 7.25 percent.