MercoPress. South Atlantic News Agency

Brazilian officials committed to protect the Real from international volatility

Mantega back on the bridge and Tombini ready to inject liquidity

Brazil’s Finance Minister Guido Mantega returned home early from the IMF/World Bank meetings in Washington this weekend, after a plunge in the Real extended the world’s biggest currency slump over the past month.

“We need to be there in case there is more volatility in the markets,” Mantega told reporters in Washington before he left for Brazil late Saturday, a day earlier than scheduled. “It’s better to be back in the country, but the situation in Brazil is calm.”

Policy makers in Latin America, after spending the past year fighting currency gains, have seen those policies upended as the European debt crisis leads investors to dump emerging market assets and seek safety in the US dollar.

After rallying 43% since the end of 2008 through August, the Brazilian currency Real has plunged 13% over the past 30 days.

While the central bank acted in the currency futures market last week for the first time since 2008 in a bid to stem the rout, the government hasn’t decided whether to roll back any measures taken to curb currency gains.

Since last year, the government has tripled a tax of foreign purchases of domestic bonds, increased reserve requirements on short dollar positions and raised levies on foreign loans.

The so-called IOF tax on foreign investors’ purchases of Brazil’s fixed income assets could be withdrawn “when it’s no longer needed,” Mantega said.

The real jumped 3.9% Sept. 23 to 1.8339 per dollar, paring its biggest weekly loss since November 2008 on speculation the government may revoke the tax.

Brazil’s central bank on Sept. 22 auctioned swaps, the equivalent to selling dollars in the futures market, for the first time since 2008, helping the Real rebound from a two-year low.

The central bank president Alexandre Tombini in Washington said he is ready to inject more liquidity into the market to protect the Real from international volatility, a government official said policy makers see no need for now to sell any of their record 351 billion dollars in reserves.

Rousseff’s government must help the central bank by “holding the line” on spending and keeping Brazil’s fiscal house in order, Tombini added.