Tombini Says Brazil to Use Broad Tools to Reduce Real Volatility

Brazil’s central bank will use its range of tools and is ready to provide liquidity if needed to reduce the real’s volatility, central bank President Alexandre Tombini said.

Brazil has a “cushion” of more than $370 billion in international reserves that allows it to provide hedge to economic agents, Tombini said at an event in Campos do Jordao in the state of Sao Paulo. The bank can also provide liquidity if needed, he said.

Policy makers on Aug. 22 introduced a $60 billion plan to stem the biggest decline amid major currencies that threatens to further stoke inflation, which is near the upper end of the government’s target range. Less than a week later, officials lifted the benchmark rate for a fourth straight meeting, and said in a statement that the decision will help put inflation on decline.

“Our strategy is clear,” Tombini said. “We will use our broad list of tools to reduce excessive volatility and mitigate potential risks to financial stability.”

The real’s decline of 12 percent in the past three months is the worst performance among 16 major currencies tracked by Bloomberg.

The real’s historical three-month volatility of 17 percent is the highest among 24 emerging market currencies tracked by Bloomberg.

Yields on interest-rate futures contracts due in January 2015 have risen 94 basis points, or 0.94 percentage point, to 10.53 percent since the start of the month. The real fell 1.1 percent to 2.3855 per dollar on Aug. 30.

Rate Increase

Policy makers raised the Selic rate to 9 percent from 8.5 percent on Aug. 28, extending the biggest interest rate increase this year amid major economies.

Analysts monitoring Brazil’s economy have increased their 12-month inflation expectations for eight straight weeks, to 6.08 percent, according to a central bank survey published on Aug 23. Annual inflation in mid-August slowed to 6.15 percent after breaching the 6.5 percent upper limit of the central bank’s target range twice this year.

Gross domestic product expanded 1.5 percent during the April to June period, or an annualized 6 percent, as investments increased, the national statistics agency said on Friday. That was the most since the first quarter of 2010 and more than all 44 forecasts from analysts surveyed by Bloomberg, whose median estimate was 0.9 percent.

Latin America’s largest economy will expand by 2.7 percent this year, according to central bank estimates. Central bankers will update their projections in their quarterly inflation report in September.

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