Brazilian banks reduced their short dollar positions to a 14-month low after the central bank increased the cost for this type of bet against the U.S. currency.
Short dollar positions held by Brazil’s banks fell to $8.13 billion on July 22 from $14.7 billion in June, Tulio Maciel, the central bank’s economic department head, told reporters today.
The central bank this month raised reserve requirements on short dollar positions in a move to limit losses investors and banks may face in case the real weakens amid a global crisis. Brazilian companies such as Sadia SA, Grupo Votorantim and Aracruz Celulose SA lost billions of reais in 2008 because of currency hedging and bets gone wrong in the aftermath of Lehman Brothers Holding Inc.’s 2008 bankruptcy. Sadia, a food processor, and Aracruz, a pulp maker, were taken over by rivals after posting currency-related losses.
“If there is a turnaround in the currency market, the central bank is the only one with dollars to sell,” Francisco Carvalho, currency director at Liquidez DTVM, said in a phone interview from Sao Paulo. “The central bank wants to prevent the excessive exposure to the dollar that happened in 2008.”
The real rose 0.2 percent to 1.5369 per U.S. dollar at 1:07 p.m. New York time as investors bring money into Brazil to profit from the world’s second-highest-inflation-adjusted interest rate. The real is the second-best performer against the dollar in 2011 among the seven major Latin American currencies tracked by Bloomberg after Colombia’s peso.
If the central bank hadn’t increased reserve requirements on short dollar positions, the real would have strengthened further, Carvalho said.
The central bank this month began to require banks to make non-interest bearing deposits with the central bank equivalent to 60 percent of their short dollar positions exceeding $1 billion dollars.
The new rule amended a regulation introduced in January that required banks to pay deposits on short positions above $3 billion.
Finance Minister Guido Mantega today said that the government may take additional steps to stem currency gains in a bid to protect domestic producers.
“We won’t let the currency war defeat us,” Mantega said in an event today in Brasilia.