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Mantega Foresees Weaker Brazilian Currency on Large Current Account Gap
Brazilian Finance Minister Guido Mantega said the country’s real will weaken at some point because of the current account deficit, comments that heightened expectations that the government will limit the currency’s appreciation.
“The current account gap should lead to a devaluation of the real,” Mantega told reporters today in Brasilia. “The current account is an important parameter, and we can’t ignore that there is a deficit.”
The real’s two-month rally is spurring speculation that the central bank will start buying dollars in the futures market for the first time in 14 months in a bid to curb the currency’s gain. Mantega said the central bank at any moment could start selling contracts known as reverse currency swaps or could decide to limit banks’ risk levels in trading foreign currencies. While saying he favored buying dollars in the futures market, he said it was up to the central bank.
Mantega’s comments were an “implicit threat” that the government plans to limit the real’s gains, Win Thin, senior currency strategist at New York-based Brown Brothers Harriman, said in an e-mailed note to clients.
‘Daring the Market’
The real has gained 5 percent in the last six months, the best performance against the dollar among the 16 most-traded currencies tracked by Bloomberg. In trading today, the real weakened 0.4 percent to 1.7691 per dollar at 2:57 p.m. New York time from 1.7624 yesterday. Earlier, the real rose as much as 0.5 percent to 1.7536.
“Brazil Finance Minister Mantega is pretty much daring the market to take the real higher,” Thin said. “The 1.75 area is likely to remain a formidable barrier.”
The central bank yesterday reported that Brazil’s current account gap widened to $5.18 billion in June, the highest on record for the month, on steeper profit remittances by multinationals and increased spending by Brazilians abroad.
Mantega said the current account gap as a percentage of gross domestic product should end 2010 at 2.3 percent. The country in the past had higher current account deficits as a percentage of GDP, the finance minister said. A weaker real would boost exports and slow the pace of profit remittances, he said.
To contact the reporters on this story: Andre Soliani in Brasilia at asoliani@bloomberg.net Arnaldo Galvao in Brasilia at o agalvao1@bloomberg.net
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