MercoPress. South Atlantic News Agency

Real soars to its highest in 12 years in spite of billions to support the US dollar

A package of measures to protect Brazilian industry competition edge is expected for next week

Brazil's Real soared Monday to its highest level against the US dollar since 1999. The dollar was buying 1.53 Real at midday on financial markets, representing a 0.9% increase from Friday. The dollar closed somewhat higher at 1.54 Real but below the 1.55 of twelve years ago.

The latest jump came despite efforts by the Brazilian government to stem the rise of the Real, which can hurt the economy by making exports from the emerging economy more expensive.

Brazil's central bank has spent some 36 billion dollars intervening in the markets in an effort to slow the rise of the Real in the first six months of the year. The administration of President Dilma Rousseff has also slapped taxes on financial transactions to discourage speculative investments from abroad.

From Sao Paulo at a business leaders event Finance minister Guido Mantega said the Brazilian government was ready to take any measures necessary to fight excessive currency gains and blamed the US and China monetary policies for much of the trouble as well as uncertainty in the Euro zone.

“The government is still seriously watching the currency and we're always ready to take measures that will stop excessive gains in the Brazilian currency” Mantega said.

Just hours after Mantega spoke, the central bank called a dollar forward auction to try to contain the Real rally, a tool that policymakers have not used since April.

The Real gains have worried Brazilian exporters, who find their produce more expensive, and so harder to sell, abroad. The Brazilian government has promised industry a fiscal package to help retain competitiveness which should be announced next week.

But the stronger Real also helps contain consumer prices by boosting cheap imports. With Brazil's 12-month inflation rate above target for more than three months now, some analysts have speculated that the government could tolerate a stronger Real as a means to fight inflation.

However Mantega denies such speculation and blames the United States ultra-loose money policy for the Real gains and China for refusing to let the Yuan float freely.

”This problem will only get better when there's a recovery in the (US) economy” he added. Mantega also insisted with his argument that there is no ‘overheating’ in the Brazilian economy.

“The problem isn't overheating in the Brazilian economy: it's under-heating in advanced economies” underlined the Brazilian minister.