U.S. dollar weakness won't last long as the Federal Reserve ends its monetary expansion program in July.
"We know this story won't last long, because the second round of the so-called policy of monetary expansion, quantitative easing, ends in July. I hope there won't be quantitative easing three," Mantega told reporters at an event in New York
Brazil's Mantega: Dollar Weakness Won't Last Long
By Matthew Cowley and Jeff Fick
DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--U.S. dollar weakness won't last long as the Federal Reserve ends its monetary expansion program in July, but the Brazilian government stands ready to take any more steps needed to prevent an "excessive appreciation" of the Brazilian real, Finance Minister Guido Mantega said Monday.
"We know this story won't last long, because the second round of the so-called policy of monetary expansion, quantitative easing, ends in July. I hope there won't be quantitative easing three," Mantega told reporters at an event in New York.
Brazil's real has gained sharply against the dollar in recent months, along with a number of other currencies, and one of the reasons is the Federal Reserve's monetary expansion, which has pumped hundreds of billions of dollars into the global economy.
"There's a grave problem of dollar undervaluation," Mantega said.
Brazil's government has taken a number of steps to try to stem the flow of dollars into Brazil, which are causing the sharp appreciation but have also contributed to higher inflation and a surge in consumer credit.
Those measures have at least delayed or slowed the currency's gains, and the Brazilian government "will continue to take measures to prevent the excessive appreciation of the real," Mantega said. In addition, the Brazilian Central Bank has stepped up purchases of dollars in the spot market, forward-dollar contracts and reverse-swap auctions.
Investors have been revising their forecasts for the Brazilian real lower, and now expect an average exchange rate of BRL1.63 per dollar for the year.
Earlier, Barclays Capital economist Marcelo Salomon had told the conference he sees the currency strengthening in the next three months, to reach BRL1.50, and will likely remain range-bound between BRL1.50 and BRL1.60 for the next eight to 10 months.
Meanwhile, record low unemployment and rising incomes will allow domestic demand in Brazil to sustain economic growth in Latin America's largest country in coming years, Mantega said.
Heated domestic demand, together with the global spike in commodities prices, has shown its ugly side in recent months as inflation has risen at an alarming pace. Inflation as measured by the country's official IPCA consumer price index is currently running at an annual rate of 6.3% through March, the latest figures. Brazil will release inflation figures through mid-April later this week.
Inflationary pressures should ease in the second quarter, Mantega said during a speech at an event in New York. "We are starting to see that inflation indexes are starting to give some positive signals," the minister said. Mantega added that he doesn't expect that global commodities prices, one of the key culprits behind inflation around the world, will keep rising.
Stabilizing commodities prices should help Brazil end 2011 with an inflation rate "similar" to 2010's 5.9%, Mantega said. That would be above the government's official target of 4.5%, but within a tolerance band of plus or minus two percentage points.
Economists, however, don't share the finance minister's cheery outlook. In the Brazilian Central Bank's weekly survey of economists and market analysts, out earlier Monday, estimates for year-end 2011 inflation rose once again, to 6.29%.
Mantega took offense at criticism of President Dilma Rousseff's economic team, including the central bank's recent dovish tone. "We are not being patient with high inflation," Mantega said, later adding that the government isn't "tolerating" high prices. Moreover, the market is wrong to project current inflation figures, he added.
Recently implemented "macroprudential" measures, such as higher bank reserve requirements and taxes on short-term foreign loans that were aimed at reining in credit, will take time to have an impact, Mantega said. Brazil must measure the impact of these moves before taking new steps to contain prices.
Mantega also said that Brazil expects to meet its primary budget surplus in 2011, while also aiming to reduce the nominal deficit to zero over time. The minister said that March's primary surplus will be "very solid."
Meanwhile, asked about fuel prices in Brazil, the minister said that as the sugar-cane harvest gets under way in May, prices of ethanol fuel will fall, which will take some of the pressure of gasoline prices.
The government has held gasoline prices steady even though international oil prices have soared, as it seeks to lessen the volatility in global prices.
--By Matthew Cowley and Jeff Fick, Dow Jones Newswires; 55-21-2586-6085; Jeff.Fick@dowjones.com |
