Mantega Says ‘Favorable’ Brazil Currency Won’t Last
August 30, 2010, 1:53 PM EDT
By Joao Oliveira
(Updates with Mantega’s GDP estimate in fourth paragraph, comments by Barbosa on inflation target in 10th paragraph.)
Aug. 30 (Bloomberg) -- Brazilian Finance Minister Guido Mantega said foreign-based companies operating in Brazil should consider sending some profits home as the exchange rate is unlikely to remain as favorable as it is now.
“This exchange rate won’t remain so favorable for companies that repatriate profits and dividends to their headquarters,” Mantega said today at an event in Sao Paulo. “We cannot facilitate the appreciation of the currency.”
The Brazilian currency strengthened 33.6 percent last year, the most among 25 emerging market currencies tracked by Bloomberg, on the back of economic growth and rising demand for the country’s commodity exports. A stronger currency buys more dollars when companies transfer reais from Brazil.
Gross domestic product may have expanded between 0.5 percent and 1 percent in the second quarter, Mantega said. Brazil’s GDP may grow 6.5 percent to 7 percent this year, he added.
Latin America’s biggest economy likely expanded 0.7 percent in the second quarter, according to the median estimate in a Bloomberg survey of 35 analysts. The national statistics agency publishes second quarter GDP report on Sept. 3.
Mantega also said that Brazil’s widening current account deficit is a transitory problem caused by the worldwide economic slump. The country may take as long as two years to narrow the current account deficit, Mantega said.
Mantega didn’t say whether the government is planning to adopt measures to curb the currency’s gains.
Brazil’s current account deficit in the year through July widened to a record 43.8 billion reais ($25 billion), the central bank said last week. The Finance Ministry estimates the deficit will increase to 45.9 billion reais this year, almost double the 24.3 billion reais deficit in 2009. The gap will further widen to 56 billion reais in 2011, the ministry said.
During the next month and a half, the government may announce incentives such as tax cuts to induce domestic banks to increase long-term lending, Mantega said.
Brazil may “slowly” reduce its inflation target beginning after 2012, Nelson Barbosa, economic policy secretary at the Finance ministry, said today in Sao Paulo. Barbosa said the inflation target affects the country’s exchange rate.
Brazil currently targets inflation of 4.5 percent, plus or minus two percentage points.
The real weakened 0.5 percent to 1.7580 per dollar at 1:44 p.m. New York time, from 1.7501 on Aug. 27.
August 30, 2010, 1:53 PM EDT
By Joao Oliveira
(Updates with Mantega’s GDP estimate in fourth paragraph, comments by Barbosa on inflation target in 10th paragraph.)
Aug. 30 (Bloomberg) -- Brazilian Finance Minister Guido Mantega said foreign-based companies operating in Brazil should consider sending some profits home as the exchange rate is unlikely to remain as favorable as it is now.
“This exchange rate won’t remain so favorable for companies that repatriate profits and dividends to their headquarters,” Mantega said today at an event in Sao Paulo. “We cannot facilitate the appreciation of the currency.”
The Brazilian currency strengthened 33.6 percent last year, the most among 25 emerging market currencies tracked by Bloomberg, on the back of economic growth and rising demand for the country’s commodity exports. A stronger currency buys more dollars when companies transfer reais from Brazil.
Gross domestic product may have expanded between 0.5 percent and 1 percent in the second quarter, Mantega said. Brazil’s GDP may grow 6.5 percent to 7 percent this year, he added.
Latin America’s biggest economy likely expanded 0.7 percent in the second quarter, according to the median estimate in a Bloomberg survey of 35 analysts. The national statistics agency publishes second quarter GDP report on Sept. 3.
Mantega also said that Brazil’s widening current account deficit is a transitory problem caused by the worldwide economic slump. The country may take as long as two years to narrow the current account deficit, Mantega said.
Mantega didn’t say whether the government is planning to adopt measures to curb the currency’s gains.
Brazil’s current account deficit in the year through July widened to a record 43.8 billion reais ($25 billion), the central bank said last week. The Finance Ministry estimates the deficit will increase to 45.9 billion reais this year, almost double the 24.3 billion reais deficit in 2009. The gap will further widen to 56 billion reais in 2011, the ministry said.
During the next month and a half, the government may announce incentives such as tax cuts to induce domestic banks to increase long-term lending, Mantega said.
Brazil may “slowly” reduce its inflation target beginning after 2012, Nelson Barbosa, economic policy secretary at the Finance ministry, said today in Sao Paulo. Barbosa said the inflation target affects the country’s exchange rate.
Brazil currently targets inflation of 4.5 percent, plus or minus two percentage points.
The real weakened 0.5 percent to 1.7580 per dollar at 1:44 p.m. New York time, from 1.7501 on Aug. 27.