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UPDATE 3-Brazil may have to live with weaker currency -cbank director
June 4, 2013 / 3:10 PM / 4 years ago

UPDATE 3-Brazil may have to live with weaker currency -cbank director

* Mendes says real is weakening in line with global move

* Real weakens more than 1 pct after Mendes’ comments

* Mendes adds that bank to act if real is out of sync

By Sujata Rao and Philip Baillie

LONDON, June 4 (Reuters) - Brazil will have to live with a weaker currency if its depreciation against the U.S. dollar is in line with the movement of other currencies, the Brazilian central bank’s director for monetary policy said on Tuesday.

In comments that drove down its exchange rate, the official, Aldo Mendes, said that “there is nothing we can do” if the depreciation of the Brazilian real is in synch with a global currency trend.

“While the real is walking (in line) with all other currencies in a global movement, it is normal and we have to live with this,” Mendes, who sits on the central bank’s eight-member board, told reporters at an investors’ event in London.

He added that bank will intervene in the local forex market if the real does not follow the global trend.

The real erased early gains and weakened about 1 percent to 2.148 per dollar after Mendes’ comments, which poured cold water on expectations that the central bank would defend any specific floor to the currency.

The real fell much more than other regional currencies like the Mexican peso and the Chilean peso, which weakened 0.29 percent and 0.1 percent respectively.

“Mendes spoke about the currency and that made investors more confident to buy dollars,” said a trader with a large Brazilian bank.

Last week, the real fell to its weakest level in four years on concerns of a possible withdrawal of U.S. stimulus measures and speculation by local investors about policymakers’ tolerance of a weaker currency. In the past three months, the real has weakened the most among the world’s 36 most traded currencies tracked by Thomson Reuters.

The sharp weakening of the real could push up the value of imported goods, stoking inflation, which clocked 6.46 percent in the 12 months to mid-May, just slightly below the official inflation target range ceiling of 6.5 percent.

The central bank surprised investors on Wednesday by raising its benchmark interest rate by a larger-than expected 50-basis-points hike to take it to 8 percent.

Mendes backed last week’s 50-basis-point hike in the benchmark rate but was one of two dissidents in the previous meeting who voted against a rate increase, citing disinflationary forces from slower global economic expansion.

In theory, a rate hike should ease the pressure on the real as it increases the appeal of Brazilian bonds, luring more U.S. dollars into the local market, all other factors being equal.

The bank’s president Alexandre Tombini said on Sunday that a weaker real should have “limited” impact on inflation, but that the bank is ready to step into the market if needed to stem currency volatility.

However, other officials signaled that the government was unlikely to let the real weaken much more as fighting inflation has turned into the top priority of President Dilma Rousseff ahead of her re-election campaign next year.

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