Brazil Prepared for Stimulus Unwind: Mantega, Tombini
Brazil is well prepared to face a pick up in market volatility amid tighter global liquidity, the country’s finance minister and central bank president said
Brazil is well-placed to withstand
another surge in financial market volatility as the US Federal
Reserve weighs unwinding its quantitative easing program,
Brazil’s top financial officials have said.
Finance minister Guido Mantega
said that Brazil was better off than many other emerging
markets thanks to its $370 billion in foreign exchange reserves
and a manageable current account deficit.
"Brazil has a situation that is
more resilient than other emerging market countries," Mantega
He said that markets had regained
their footing following several months of extreme volatility
and capital flight from emerging markets, which had also led by
August to a 20% decline in the value of the real.
The exchange rate appeared to have
settled at around 2.20 reais per US dollar, he said.
Speaking at the same event
Wednesday, central bank governor Alexandre Tombini said policy
measures taken in recent weeks, including a $60 billion
currency swap program, had helped turn the tide in
"The program is working well," he
Tombini said the country was now
well positioned to withstand tighter global liquidity
conditions. The country’s floating exchange rate
regime was the "first line of defense" against unfavorable
shocks, he said.
Volatility in the Brazilian real
had fallen since the currency swap and repo program was
implemented late August, which the currency had appreciated, he
Tombini also drew attention to
Brazil’s current account deficit — which
the Bank expects to be 3.35% in 2013 — and large
foreign exchange reserves as evidence the country was safe from
the ill-effects of global monetary tightening.
Mantega told LatinFinance earlier this month that
investment was the main driver of a pick- up in economic growth
in the second quarter.
Mantega urged US policymakers to
engineer a gradual withdrawal of its bond buying program in
order to minimize financial market turbulence.
"The recovery of the US [economy]
is essential for the world, however it is a double-edged
sword," Mantega told an audience in New York.
He said that while the US was
right consider unwinding its extraordinary support for its
economy and financial system, the market reaction had been
"We must have an organized
reduction, otherwise you will have international turbulence,
and you will negate the advantage that a growing US economy
"In May, when the outlook to
reduce the stimulus first appeared, the markets exaggerated,"
he said. "The best path is for a gradual reduction."
The officials spoke at the Brazil
Infrastructure Opportunity seminar in New York Wednesday.
See also: "
The problem with Brazil", in LatinFinance