Currency slide part of “necessary” rebalancing: Meirelles
The depreciation of the Brazilian real is a “necessary” part of economic rebalancing, former central bank head Henrique Meirelles said.
sharp decline in Brazil’s currency is a “necessary” part of economic
rebalancing and does not reflect a deeper malaise, the country’s former central
bank chief Henrique Meirelles has said, pushing back against growing fears over
the health of Latin America’s biggest economy.
an interview with LatinFinance,
Meirelles said: “We are going through a process of change in the relative
prices in the economy. The change in the exchange rate reflects the drive
towards rebalancing the current account balance to a more sustainable level.”
said that a drop in the real from 1.8
to the dollar “to 2.3 or more” was “part
of the rebalancing.” While he acknowledged that the depreciation – which has
seen the real lose 20% of its value against the dollar since the start of the
year – posed challenge, Meirelles nevertheless said the process was both
“necessary” and “simple.”
part of the society that produces tradable goods are gaining income, relative
to the ones who consume tradable goods and produce non-tradable goods,
comments came as the central bank hiked its benchmark rate to 9% from 8.5% in a
further attempt to rein in inflation, aggravated by the falling currency.
have stepped up measures to support the currency, which last week hit a four-year
low against the dollar. The central bank announced on August 22 a $60 billion
program to prop up the real.
analysts remain divided over whether recent intervention will put a floor under
the real’s slide against the dollar. “This is impossible
without a much more radical and highly improbable switch to an explicitly fixed
exchange rate regime,” Société Générale said Wednesday in a note.
across the emerging markets have been slammed amid a retreat in capital on
expectations of an end to ultra-low interest rates in the US.
nevertheless poured cold water on the suggestion that global financial markets
could be heading for renewed turmoil, despite a sharp rise in volatility in
is no turmoil,” Meirelles said. “Real turmoil was the post-Lehman events, I
don’t see this happening now. The end of easy – maybe excessive – liquidity is
going to happen, which means that the abundance of funding for current account
deficits is ending.”
added that policymakers must now focus on fundamentals, including a more
sustainable current account balance – one consistent with the level of foreign
direct investment and not reliant on borrowing.
current account deficit has more than doubled in the year to July to $9
billion, while FDI has slowed over that period, according to recent central
bank data. Brazil-focused economists recently slashed 2013 growth forecasts to
2.2%, a central bank survey showed.LF
The full interview with Henrique Meirelles will be
published this month in LatinFinance’s 25-Year issue. http://www.latinfinance.com/quartercentury