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BRASILIA, Sept 3 (Reuters) - Brazilian currency market volatility is on the high side, boosted by an increase in short-term flows and day trading, as well as record low interest rates, central bank president Roberto Campos Neto said on Thursday.
Speaking in a live event hosted by businessman Abilio Diniz, Campos Neto noted that volatility has remained high in recent weeks even as the real has appreciated. He said he would like to see it come down.
Campos Neto expressed confidence that the government’s commitment to fiscal discipline, maintaining its spending cap rule and resuming economic reforms will push foreign exchange volatility lower.
“I think it (volatility) will fall. I think that if we show responsibility in terms of reforms and fiscal issues, we will see volatility fall,” he said.
Three-month implied dollar/real volatility, an options market gauge of how much traders expect the exchange rate to fluctuate over the coming three months, is still a lofty 20%, more than double pre-crisis levels of just under 10% in February.
It has stayed high despite the real rebounding almost 15% from its record low near 6.00 per dollar in May.
Campos Neto said it was harder to intervene in the currency market to tackle volatility than it is to fight more straightforward currency weakness. Earlier this week he said the central bank lacked the proper tools to combat high volatility.
Brazil’s real has been one of the worst-performing currencies in the world this year, losing a quarter of its value against the U.S. dollar as the central bank has slashed interest rates to a record low 2% and the government’s deficit and debt have soared to record levels.
Campos Neto repeated his view that a return to fiscal discipline is essential to supporting the economy and markets.
“Any news that shows financial agents that we can solve our problems without touching the (spending) ceiling will create greater stability,” he said. (Reporting by Gabriel Ponte, Jamie McGeever and Marcela Ayres; Editing by Chris Reese and Dan Grebler)
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