MercoPress. South Atlantic News Agency

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

Tulio Maciel, Brazil facing a different situation to early 2011

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.

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.