BRASILIA, March 9 (Reuters) – The Brazilian real’s natural exchange rate is weaker now given the record low level of interest rates, Economy Minister Paulo Guedes said on Monday, adding that the currency is also being determined by the progress – or otherwise – of economic reforms.
Speaking to reporters in Brasilia as the real slumped to a new low and the central bank intervened selling dollar reserves for the first time since November, Guedes reiterated his view that the real is a floating exchange rate, albeit at a different level now than before.
“Brazil has lower interest rates and a slightly higher (dollar) natural exchange rate, but it is a floating exchange rate,” Guedes said outside the Economy Ministry in Brasilia.
“There’s coronavirus, there’s crisis, and if reforms aren’t progressing the (dollar) goes up; if reforms are moving, it (the dollar) goes down,” Guedes said.
The real fell as low as 4.7939 per dollar on Monday, extending its losses so far this year to 16%, before the central bank’s auction of $3 billion worth of reserves pulled it back to around 4.72 per dollar.
Brazil’s Congress passed a landmark social security reform bill last year that will save the Treasury some 1 trillion reais over the next decade via a range of measures including raising the minimum retirement age and increasing pension contributions.
But so far this year, the government has made little tangible progress on its aim to push through tax reform, “administrative reform” of the public sector and “federative pact” overhaul of state and federal government finances.
Asked if this was the time to sell international FX reserves, Guedes again highlighted the need to accelerate the reform process.
“If reforms go ahead and people are (still) trying to buy dollars, the central bank has said it will sell (dollars). On the other hand, if reforms stall … then uncertainty continues. But this is a problem for the central bank,” he said.
In 2018, Guedes said that in a case of “speculative attack” on the real at around 4.50 or 5.00 per dollar, the central bank could sell $100 billion, which would also help improve the public finances.
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