- Full Senate approved four members of central bank board
- They defended careful use of currency intervention tools
Brazil’s Senate on Tuesday confirmed the nomination of four central bank board members, who pledged to slow inflation to the official target and uphold a floating exchange rate, while allowing for some room to intervene in the real.
The upper chamber approved the appointment of Reinaldo Le Grazie, Tiago Berriel, Carlos Carvalho and Isaac Menezes Ferreira to the bank’s nine-person board, meaning they should be present for the next rate decision on July 20. Brazil’s new central bank chief Ilan Goldfajn tapped the four last month to help him bring inflation to the 4.5 percent target by the end of next year without exacerbating the worst recession in decades.
The new board also takes over at a time when the Brazilian real is changing course and strengthening following last year’s depreciation. Since Goldfajn took office early in June, the currency has gained more than 5 percent against the U.S. dollar, which amounts to a rally of 20 percent so far this year.
The central bank last week started the sale of so-called reverse currency swaps, which are derivatives that weaken the currency by canceling traditional swaps that policy makers previously sold when they sought to buoy the real.
Goldfajn’s nominees signaled in Senate hearings Tuesday that they would continue to support the policy as a temporary measure to ensure stability.
“Spot interventions to correct strong foreign exchange distortions are healthy, as long as they don’t change the price of currency,” said Le Grazie, a former director at Bradesco SA’s BRAM Asset Management who was nominated as director of monetary policy. “I defend the use of currency tools with parsimony.”
Le Grazie’s comments echoed those of Ferreira, who was nominated as director of institutional relations, and of Berriel, who was tapped to head up international relations. “We need to reduce the currency’s volatility, and we’ll manage to do that with a floating exchange rate,” Berriel said, adding however that there is “consensus” among academics that Brazil shouldn’t have a complete free-floating regime.
The real fell 1 percent on Tuesday to 3.30 per U.S. dollar after the central bank sold another batch of 10,000 reverse swaps.