MercoPress. South Atlantic News Agency

Brazil introduces rules on short-dollar positions to curb speculation with the Real

The Real has gained 48% against the US dollar since the end of 2008 distorting production costs

Brazil’s central bank changed currency market rules to curb bets that the Real will appreciate against the dollar, according to an e-mailed statement. Brazil will require that banks make non-interest bearing deposits with the central bank equivalent to 60% of their short dollar positions exceeding 1 billion US dollars, the bank said.

The rule, which banks will have five days to implement, amends a regulation introduced in January that required banks to pay deposits on short positions above 3 billion. A short position is a bet that the price will fall.

Brazil is seeking to improve the working of the currency spot market and reduce short dollar positions that reached 14.7 billion in June, the central bank said.

The central bank announced the measure a day after Finance Minister Guido Mantega said more measures may be needed to defend Brazil from what he’s called a global “currency war.”

The Real rose to as high as 1.5524 per dollar this week, its strongest level since 1999, as investors increased demand for higher-yielding assets amid easing concern over Greece’s debt crisis. Brazil’s government has repeatedly complained that a stronger currency harms its exporters while rich nations boost their own exports by devaluing their currencies.

The measure is unlikely to be effective since Brazil’s interest rates are so attractive that investors will find ways to bring money into the country. The Real has gained 48% against the US dollar since the end of 2008.

Policy makers raised interest rates at their last four meetings, to 12.25% and traders are betting they will raise rates twice more this year.