September 7, 2015 / 10:40 AM / 4 years ago

Brazil well prepared to cope with U.S. rate rise, minister says

MADRID, Sept 7 (Reuters) - Brazil is well prepared to cope with any market volatility resulting from a U.S. interest rate rise, Finance Minister Joaquim Levy said on Monday.

Levy told a meeting in Madrid that Brazil’s banks were well capitalised and it has large foreign exchange reserves.

“That reassures us that even if there starts to be volatility after U.S. interest rate adjustments begin - and there will be volatility, because today the market is less well oiled and we don’t do the work we used to do to absorb shocks - in Brazil we are well prepared to confront this first period of volatility,” Levy said.

Spain’s Economy Minister Luis de Guindos, speaking at the same event, said a U.S. rate increase could produce certain volatility and uncertainty but the U.S. Federal Reserve had done good work in preparing the ground for a rise.

“I don’t think it will have a significant impact (on the Spanish economy),” he said, at the event organised by Spain’s El Pais newspaper.

De Guindos said his impression was that the Fed had not yet decided if it would raise rates in October or later.

Expectations that the Fed could raise rates as soon as September have been called into question recently because of weakness in the Chinese economy.

Many emerging market economies are concerned that a Fed rate rise would trigger large outflows of capital from emerging economies into dollar-denominated assets, creating market turmoil that would hurt growth.

Brazil’s central bank on Wednesday decided to halt its aggressive rate-hiking cycle to relieve an economy struggling with recession, keeping its benchmark rate at 14.25 percent.

Meanwhile its currency, the real, has slid nearly 30 percent so far this year to its weakest in nearly 13 years.

Levy voiced confidence that Brazil’s economy would begin to emerge from recession soon.

“The recovery is a question of months exactly because the government has had the strength to take the necessary short-term measures,” he said.

Brazil’s economy shrank 1.9 percent in the second quarter, official figures released last month showed, sinking into a recession that has hammered President Dilma Rousseff’s popularity as she struggles to save the country’s investment-grade credit rating amid a vast corruption scandal. (Reporting by Adrian Croft; Editing by Paul Day and Toby Chopra)

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