May 22, 2009 / 5:02 PM / in 10 years

UPDATE 1-Brazil currency gains "cause for concern" - Finmin

* Rally in Brazil’s real a “cause for concern”

* Mantega sees c.bank continuing to buy dollars

* Brazil interest rates should continue to fall (Adds currency performance, central bank interventions)

SAO PAULO, May 22 (Reuters) - Recent gains in the Brazilian currency BRBY are a “cause for concern,” but also reflect international investors’ growing interest in the nation’s assets, Finance Minister Guido Mantega said on Friday.

“The appreciation of the exchange rate results from investors’ enthusiasm about Brazil because the country offers more stable, secure conditions,” Mantega told reporters.

“The (currency) gains harm the productive sector, exporters and farming. In fact it is a cause for concern,” he added.

Mantega’s comments mirror those of Central Bank President Henrique Meirelles on Thursday warning against “excessive euphoria” in currency markets.

The bank has bought dollars in the spot foreign exchange market every session since May 8 in a bid to soak up a flood of greenbacks to Brazil and ease the real’s appreciation. The currency has gained 15 percent since the beginning of the year and surged more than 20 percent since reaching a three-month low in early March.

Asked how the government could limit gains in Brazil’s currency, Mantega said the central bank was already buying dollars and increasing international reserves “which, by the way, is one of the reasons why we are solid.”

Mantega said Brazil’s economy would grow between 3 percent and 4 percent in the fourth quarter of this year, recovering after a deep slump in the first months of the year.

The central bank has signaled it will continue to lower domestic interest rates, a step that is in “the right direction,” he added.

“The conditions are there for the economy to grow after a tumble in the last quarter of last year,” Mantega said. “The recovery is under way, with a slower rebound in the second half that will gain steam toward the end of the year.”

Mantega foresees no changes to the government’s inflation target of 4.5 percent plus and minus 2 percentage points.

Reporting by Paula Laier; writing by Elzio Barreto and Guillermo Parra-Bernal, Editing by Chizu Nomiyama

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