Brazil minister vows to keep currency competitive

Brazil will continue to take steps to avoid excessive appreciation in the country's real currency following the latest monetary stimulus by the US Federal Reserve, Finance Minister Guido Mantega said. Speaking to businessmen and economists at a conference in Sao Paulo, Mantega said some Asian countries were keeping their currencies artificially weak.
He vowed to maintain the real at a competitive level for Brazilian industries. He did not specify the adequate level. The Fed on Thursday launched a bond buying program which would pump $40 billion monthly into the US economy to lower long-term interest rates and encourage investments to improve the job market. The lower US rates however could encourage bond investors to sink money abroad into countries like Brazil whose bonds offer much higher interest rates.
Mantega pledged on Thursday to deploy an "arsenal" of measures to protect Brazil's economy from fallout from the Fed's new stimulus by moving to stop a flood of foreign capital from driving up the value of the real. The Brazilian currency strengthened 0.39 percent against the US dollar on Friday morning. Since early July, the Brazilian government has managed to keep the real trading between 2.00 and 2.10 per dollar - a narrow range that it considers beneficial for exporters without stoking inflation.
That range has only been maintained with aggressive central bank intervention, however. On Wednesday alone, when expectations of Fed stimulus drove the real near the level of 2o per dollar, Brazil's central bank sold $1.37 billion worth of reverse currency swaps - derivative contracts designed to stop the currency from appreciating. At the Sao Paulo conference on Friday, Mantega said Brazil's sluggish economy was speeding up in the second half of this year and should grow 4 percent or more next year. The latest central bank economic activity data for July, released earlier on Friday, shows that economic activity is rebounding, Mantega said. He added that other economic indicators point to stronger growth in the second half of this year versus the first half. The central bank's IBC-Br economic activity index rose 0.42 percent in July from June in seasonally adjusted terms. The median estimate in a Reuters survey of 12 analysts was for a rise of 0.30 percent.