September 23, 2011 / 5:11 PM / 6 years ago

UPDATE 1-Brazil says ready to intervene in FX; real firms

* Real strengthens over 2 pct after cenbank comments

* Dollars not flowing out of the country, finmin says

* Cenbank monitoring FX impact on inflation (Adds quotes, background, byline)

By Walter Brandimarte

WASHINGTON, Sept 23 (Reuters) - Brazil’s central bank said on Friday it is ready to intervene in foreign exchange markets to curb volatility in its currency, one day after surprising markets with a move to stop the real from weakening.

Speaking to investors in Washington, the central bank president, Alexandre Tombini, said Brazilian policy makers want to see where the currency will stabilize “in the next days or weeks” to assess its impact on inflation, which he sees as declining overtime.

Meanwhile, the bank will work to avoid excessive volatility in the currency, providing liquidity to the market whenever necessary, Tombini said, helping the real strengthen more than 2 percent.

“We stand ready to intervene to make sure foreign exchange markets work properly,” he said in an event organized by the Brazilian American Chamber of Commerce.

The real BRBY strengthened to 1.85 per dollar following his comments, after closing near 1.9 per greenback on the previous day.

The real had weakened to 1.95 during Thursday trading as investors became more averse to the risk of another global financial crisis, prompting Brazil’s central bank to sell $2.75 billion in currency swaps to cushion its fall.

That move was designed to provide liquidity in the derivatives market, where investors were quickly turning more bearish on the real, Brazilian Finance Minister Guido Mantega told investors in the same event.

“The reason behind the weakening of the real is a sharp adjustment in the derivatives market, not dollar outflows,” Mantega said.

He also promised the government will maintain its fiscal consolidation plans by cutting operating expenditures in order to make room for infrastructure investment and for further monetary policy easing, especially if the global financial crisis worsens.

The Brazilian economy had been resisting the global crisis so far, but the effects have started to become visible. Given global constraints, the central bank will likely revise down, by the end of the month, its 4 percent economic growth forecast for this year, Tombini said. (Additional reporting by Pedro da Costa; Editing by Leslie Adler)

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