Brazil expects currency markets to calm down and will maintain floating exchange rate policy

The executive secretary of the Ministry of Finances, Nelson Barbosa, speaking at a seminar at the Getulio Vargas School of Economics, declared that the Dilma Rousseff administration considers its floating exchange rate policy to be the best strategy for the country and is not considering any changes at this time, even though some parts of the business community would like to talk about it.

Speaking at the Growth with Sustainability – New Development Policy (“Desenvolvimentismo”) in Brazil Seminar, Barbosa explained that the government’s economic team is aware of the need to avoid any misbalance that could harm Brazil’s economy. And although he admitted that the real is very strong against the dollar, he pointed out that at R$1.80 losses of competitivity in the manufacturing sector had been curtailed.

[note: the dollar x real exchange rate (“dólar comercial official”) hit a historical high of over R$3.80 at the end of 2000 during the presidential election that took Luiz Inacio Lula da Silva to the Palacio do Planalto. After that, the rate fell steadily (reaching R$1.59 in July 2008), but suddenly rose due to the 2008 international financial crisis when it peaked at R$2.38 in January 2009. Since then, it has fallen constantly once again, reaching R$1.57 in July 2011, but then rising slowly to Barbosa’s R$1.80 at the moment]

The executive secretary was very blunt about the government’s position: “The government does not have an exchange rate target,” he declared.

As for the business sector, Barbosa suggested that as it deals with the exchange rate on a day to day basis it should do so by means of a combination of incentives for increased production and an eye on the dynamics of the international market.

“The government is concerned with volatility. There you have a factor that affects investments and yields (“appreciação”),” said Barbosa.

In other remarks, the executive secretary said that it was expected that there would be less volatility as commodity prices stabilized and adjustments were made to the expanded tax on dollar inflows (“IOF”) [this is the 6% tax that is now levied on money entering Brazil for less than 5 years].