Brazil ready to increase FX intervention but cautious on bond buying: central bank chief

BRASILIA (Reuters) - Brazil stands ready to dip into its large pool of foreign exchange reserves and continue intervening in the currency market if needed, but any bond market intervention is likely to be far smaller in size, central bank President Roberto Campos Neto said on Wednesday.

Brazil’s real has lost around 30% of its value and is one of the worst-performing currencies against the dollar this year. A combination of record low interest rates, a sharply deteriorating economy because of the coronavirus pandemic and political uncertainty has pulled capital out of the country.

Speaking at an online event hosted by infrastructure and industry umbrella group Abdib, Campos Neto said the scale of capital outflows in March was surprising, and that the bank increased its FX intervention when it was apparent the real was decoupling from other emerging currencies.

“Brazil has a lot of reserves, and as a percentage of GDP they have actually risen because the (FX) depreciation has been greater than the amount we have sold,” Campos Neto said.

“There is a lot of room to sell reserves. We will continue intervening, and may even increase that intervention if we believe it is necessary.”

Brazil’s reserves fell $23 billion in March as the central bank upped its dollar-selling intervention to counter a record portfolio outflow of almost the exact same amount. Total reserves at the end of April were about $320 billion, the lowest since 2011.

On bond-buying, however, Campos Neto said he preferred targeted action to provide liquidity and manage the interest rate curve when markets seize up.

“We don’t think we should do anything more than that until we’re sure the power of monetary policy has run out,” he said.

The bank has emergency powers to buy sovereign bonds on the secondary market, but the ‘quantitative easing’ asset purchases in many developed economies appear unlikely.

Reporting by Jamie McGeever and Marcela Ayres; Editing by Chris Reese