MercoPress. South Atlantic News Agency

Brazil will continue with the 60bn dollar currency intervention program: ‘it’s working adequately’

Tombini said inflation is coming down and feels ‘cautiously optimistic’ about Brazil’s economy

Brazil’s central bank chief Alexandre Tombini said on Monday policy makers will continue with their 60 billion dollars currency intervention plan, even after the Real rallied more than any other currency in the world as a consequence of the surprise announcement from the US Fed that for the moment it will not taper the bonds’ buying program to stimulate the US economy

“The program is adequate, it’s working well,” Tombini told reporters and analysts in a conference call. There is “no news whatsoever from our side on this issue.”

The Real has gained 10.6% since the central bank said on Aug. 22 it would offer 3 billion dollars in swap and credit line auctions per week. After the Federal Reserve surprised analysts last week by deciding against tapering U.S. stimulus, Finance Minister Guido Mantega said the central bank could curtail its dollar auction program.

Tombini reiterated the central bank has to remain especially vigilant to prevent a weaker Real from fuelling inflation through more expensive imports. The Real has weakened 6.9% this year.

Brazil’s annual inflation slowed to 5.93% in mid-September, the first time the rate was below 6% this year. The Central bank has lifted the key rate 1.75 percentage points to 9% this year after inflation surpassed the upper limit of their target range for the first time since 2011.

Analysts expect the central bank to further raise the basic Selic rate another 50 points at the next meeting of the Monetary Committee in October.

“As far as inflation is concerned, we have made progress” Tombini said. “In the last three, four months we have seen inflation come down”.

Tombini also pointed out that the Fed is acting in a constructive way in the process to gradually reduce its massive stimuli program, “and the softer the reduction the better for emerging countries”.

The banker said that the world is already “in transition from highly accommodative and non conventional policies to a world where monetary and financial conditions are becoming normal”. However the timing remains uncertain currently “but I insist I believe we are already in the transition process”.

In brief comments relative to the world economic scenario, Tombini said it was improving and it will benefit emerging countries such as Brazil.

“We see stabilization in Europe; China steering its growth model along a constructive and positive path and we see the US recovery becoming stronger”.

More specifically on the Brazilian economy Tombini said he was “optimistically cautious”. He added there are great circumstances ‘to increase growth potential’ and “we are in a position very close to full employment and we must emphasize now in infrastructure investments and increasing productivity”.