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Brazil's Mantega says volatile currency 'not good for anyone'
August 24, 2013 / 3:52 PM / 4 years ago

Brazil's Mantega says volatile currency 'not good for anyone'

* Mantega says gov’t ready to combat forex volatility

* Petrobras will not adjust fuels based on forex volatility

SAO PAULO, Aug 24 (Reuters) - Sharp swings in the Brazilian exchange rate are “not good for anyone” and the government will make efforts to limit any impact on inflation and the economy, said Finance Minister Guido Mantega in the Saturday edition of O Folha de S.Paulo newspaper.

The Brazilian real had weakened 20 percent since May and when it hit 2.45 against the dollar on Wednesday, the central bank stepped in the next night with a $60 billion plan of daily currency swaps and repurchase contracts that quickly reversed the currency’s direction.

The real snapped back more than 3 percent to close at 2.34 reais on Friday.

“This strong dollar is not good for anyone,” Mantega told O Folha. “Because business slows operations. Even those who benefit from a stronger dollar - exporters - slow business to see how far the dollar will go. It hurts everyone.”

The minister’s words appear to be an about-face from his statements on Aug. 16, when he said the weaker real would help the country’s manufacturing sector, which has been struggling. The real closed at 2.39 to the dollar that day.

The minister said the recent strength in the dollar against the real would not likely carry through into higher consumer prices on the domestic markets, which have eased slightly over the past month but are still uncomfortably high for the central bank at 6.27 percent annually.

He said the government, for its part, would not allow the state-run oil company Petrobras SA to raise fuel prices based on volatile swings in the currency. He did not, however, dismiss an eventual price adjustment sometime in the future.

Local papers have run almost daily reports in the last week saying the government is considering a 5 percent to 6 percent increase in gasoline prices, but neither officials nor Petrobras have confirmed that.

The state-controlled company is losing billions of dollars a year in its refining division due to the government policy of holding fuel prices artificially low to contain inflation.

The minister said the recent volatility in the real was due to speculation and the high level of liquidity on Brazil’s currency exchange market.

“It’s important to make clear that this pressure of the dollar in our case is not due to capital flight, nor the loss of exchange reserves, as is happening in other countries. Here, it is due to hedging and speculation,” Mantega said.

Two days before the central bank announced its $60 billion currency stabilization program, Mantega warned markets that betting against the real was not a good wager and the central bank was ready to step in.

“You can gain, but you can lose because we have a floating exchange rate. So, you need to be careful,” Mantega told the newspaper. “If you bet too much in one direction, you could go bust.”

Reporting by Reese Ewing and Tiago Pariz; editing by Gunna Dickson

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