Brazil prepares new measures against currency appreciation

Brazil is preparing fresh measures to stem an appreciating currency amid the threat of a “trade war,” Finance Minister Guido Mantega said, according to the Financial Times.

“This is a currency war that is turning into a trade war,” the FT said, citing an interview with Mantega, who last year used the former term to describe competition among nations to cheapen exchange rates and bolster exports. He said Brazil is planning steps to prevent continued gains in the real and intends to raise the issue of currency manipulation at the World Trade Organization and other international bodies, the FT said.

The U.S. and China are among the worst offenders, Mantega said, according to the FT. Policy makers from China to Brazil and South Korea have faulted the Federal Reserve’s bond-purchase program for undermining the dollar and fueling risks of asset bubbles in emerging markets. Meantime, China has limited gains in its currency, seeking to support export-linked jobs.

Policy dilemma

“The ongoing struggle here highlights the fact that the Brazil central bank faces the same policy dilemma as the Asian central banks,” Win Thin, global head of emerging-market

strategy at Brown Brothers Harriman in New York, wrote in a report last week after Brazil’s latest measures to counter a rising currency. “We think other measures will be rolled out over time as needed to try and prevent that break of 1.65” real per dollar, he added.

Brazil’s central bank on Jan. 6 set reserve requirements on short dollar positions held by local banks in its third attempt since October to stem a rally in the currency. The effort helped prompt a weekly slide in the real, which closed around 1.6840 per dollar Jan. 7.

Mantega said that most of last year’s steps were aimed at the spot market, and that the focus has now turned to futures markets that are helping drive up the real, the FT said.

Brazil’s real has soared about 37 percent since the start of 2009 against the dollar. Elsewhere, the Indonesian rupiah has climbed 20 percent, Thailand’s baht 15 percent and South Africa’s rand 39 percent.