MercoPress. South Atlantic News Agency

Brazil steering its currency to competitive ground for manufacturing

Mantega says the Real at a reasonable level, but not totally satisfactory

Brazil's exchange rate is at a reasonable level though not totally satisfactory said Finance Minister Guido Mantega on Friday, in an indication that the government is prepared to further weaken the Real to boost a still weak economy.

Addressing business leaders in Sao Paulo, Mantega said that a Real weaker than 2 per US dollar is “here to stay”. The Real this week pierced the level of 2.11 per dollar for the first time in over three years.

However the central bank stepped in quickly to prevent the Real from depreciating further by calling a traditional currency swap auction. The announcement drove the Real back to below the 2.10-per-dollar mark.

Central bank chief Alexandre Tombini a day earlier said the monetary authority was ready to provide liquidity to the market to prevent the Real from weakening too much, too fast.

“A weaker Real is helping make Brazilian manufacturers more competitive against foreign rivals”, Tombini said in the congressional hearing.

Tombini added that while the central bank does not target a specific value for the Real, it stands ready to intervene in the currency market when necessary.

“The exchange rate is at a reasonable level, not totally satisfactory, but reasonable,” Mantega said.

A depreciated Real is already having a positive impact on the Brazilian economy, Mantega added, with imports falling and exports of manufactured goods starting to rise, even in an international scenario that is “totally unfavourable”.

The Brazilian economy is expected to grow a meaner 1.5% this year after hitting a two-decade high of 7.5% in 2010. Although local activity is improving, a still weak industrial sector has cast doubts over the recovery's strength.

Mantega also said inflation in Brazil is under control, which could allow for more expansionist monetary policy in Latin America's largest economy.

He also forecasted the Brazilian economy would expand by at least 4% next year.