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Brazil Said to Consider Measures to Stem Currency Rally

The central bank of Brazil's new real notes are displayed during a press conference in Brasilia. Photographer: Adriano Machado/Bloomberg
The central bank of Brazil's new real notes are displayed during a press conference in Brasilia. Photographer: Adriano Machado/Bloomberg

Brazil is considering measures to stem gains in the real, the world’s second best performing major currency this year, a government official familiar with internal discussions said. The real extended losses.

The real dropped 1.3 percent to 1.7177 per U.S. dollar at 12:56 p.m. in Sao Paulo, from 1.6958 yesterday. The currency earlier gained as much as 0.4 percent to 1.6890, the strongest since level Oct. 31. The government official, who asked not to be identified because a final decision hasn’t been taken, declined to provide details.

Emerging markets are receiving large amounts of foreign capital as policy makers in the U.S., Europe and Japan adopt “expansionary policy” to shore up economic growth, Brazilian central bank President Alexandre Tombini said yesterday. Brazil resumed efforts to rein in currency gains earlier this month, with the central bank buying dollars in the forward market.

“The government already said it will protect itself from the currency war,” Alfredo Barbutti, an economist at Liquidez DTVM Ltda, said in a phone interview from Sao Paulo. “It’s protecting itself from the consequences of the monetary easing that is being carried out by the world’s four most important central banks -- U.S, Europe, Japan and U.K.”

Capital Inflows

Since the beginning of the year, investors and exporters brought into Brazil $12.5 billion, compared with an outflow of $1.9 billion in December.

Finance Minister Guido Mantega has repeatedly pledged to take all necessary steps to prevent the exchange rate from hurting local manufacturers. Last year, Mantega introduced a tax on currency derivatives, and in 2010 he raised taxes on foreign investment in fixed income.

The Finance Ministry declined to comment, according to its press office in Brasilia.

The central bank resumed intervention this year with a Feb. 3 auction to buy dollars for reais at a future date. The central bank has also been buying dollars in the spot market, a policy that had been abandoned in September. The bank also auctioned currency swaps today.

The Brazilian real has gained 8.65 percent this year, the second-best performer among the 16 most-traded currencies tracked by Bloomberg. The Mexican peso gained 8.69 percent in the period.

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