Wednesday, December 19th 2012 - 01:59 UTC

Brazil loosening capital controls imposed in the past two years to prop the Real

The Brazilian central bank reduced reserve requirements on short dollar positions held by local banks as it steps up efforts to buoy the Real, the worst performing major currency this year.

Tulio Maciel, Brazil facing a different situation to early 2011

Starting December 20, banks will be required to deposit in cash at the central bank 60% of their short positions in US dollars above 3 billion, up from a previous limit of no more than 1 billion or any amount in excess of its capital base, the central bank said in a statement. The Real strengthened 0.2% to 2.0992 per US dollar on the news.

The government started this month loosening capital controls it imposed in the past two years after the Real tumbled to a three-year low on Nov. 30 and the economy grew at half the pace forecast by economists in the third quarter.

Brazil is facing a different situation now compared with early 2011, when measures were implemented to slow capital inflows, said Tulio Maciel, the head of the central bank’s economic research department.

Brazilian banks’ short dollar position was 3.65 billion on Dec. 14, Maciel said on Tuesday. That compares with banks’ 914 million long dollar position last month. Banks short dollar position was 16.8 billion in December 2010, just before the government introduced reserve requirements to deter bets against the dollar.

Brazil’s economy expanded 0.6% in the third quarter, the national statistics agency said Nov. 30, as government stimulus efforts failed to revive investment that fell for the fifth straight period. The Real has weakened 11% this year.

2 comments Feed

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1 yankeeboy (#) Dec 19th, 2012 - 02:19 pm Report abuse
Ahh the race to bottom (devaluation) has begun. Who has cheaper products Brazil or Argentina?
Brazil will win
I wonder where the peso will be in 2013.
Anyone care to guess?
10/1 or 14/1
I have heard both numbers being thrown around lately
2 British_Kirchnerist (#) Dec 24th, 2012 - 02:14 pm Report abuse
So now you think Brazil is going the way of Argentina, whose collapse remains as ever right round the corner....looney!

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