With public finances threatened, Brazil’s Real has suffered as investors adjust to changing liquidity conditions globally, but some of it has not been justified by economic fundamentals, central bank President Roberto Campos Neto said on Tuesday.
Speaking in an online event hosted by Arko Advice and Empiricus, Campos Neto said the central bank has large currency reserves and will continue to act as it sees fit, adding that it remains focused on using all the tools at its disposal to meet it inflation goals.
Campos Neto was speaking on the day the central bank intervened in the spot foreign exchange market selling US$ 2.1 billion as the real hit a three-month low against the dollar, taking its dollar-selling intervention since last Thursday to over US$ 5 billion.
Growing worries over Brazil’s fiscal outlook explain part of the Real’s weakness, while global jitters as markets adjust to the worldwide rise in bond yields have also made it easier for traders to attack the real, he said.
“But we believe part of the move is not justified by fundamentals. We have increased our presence in the FX market recently and Brazil has a very large amount of reserves,” Campos Neto said.
“We can continue acting in ways we believe are reasonable to always maintain conditions of (good) liquidity,” he added.
The Real closed at its lowest level on Tuesday since Nov. 3, and the central bank’s actions were its fifth and sixth bouts of direct market intervention since Thursday.
Campos Neto, however, again warned that Brazil must get its public finances back in order, noting that investors are generally right to increase the risk premium on Brazilian assets if they believe the fiscal fundamentals are deteriorating.
“If you have a perception of deteriorating fundamentals allied to a perception that emerging market liquidity is going to fall, then this volatility leads to bigger (price) moves,” he said
In related news Economy minister Paulo Guedes said Brazil’s economy could grow 3.5% this year and may have shrunk last year by less than 4%.
However Guedes as well as the central bank chief stressed again that a resumption of emergency cash transfers to the poor must be within a fiscal framework that ensures longer-term sustainability.
Speaking in a live online event hosted by radio station Jovem Pan, Guedes said the government is drafting employment and income programs to help the economy ease its way out of the pandemic, notably the job retention scheme which he said saved 11 million jobs last year.