Reuters: US Dollar Report: Weaker real to have limited impact on Brazil inflation-Tombini

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Weaker real to have limited impact on Brazil inflation-Tombini Jun 2nd 2013, 22:44 Sun Jun 2, 2013 6:44pm EDT * Central bank chief says weaker real due to global factors * Bank ready to intervene to halt "excessive volatility" BRASILIA, June 2 (Reuters) - Brazil's central bank chief on Sunday said the recent weakening of the local real currency should have "limited" impact on inflation, but that the bank is ready to step in if needed to stem currency volatility. The real ended at 2.1412 per dollar on Friday, its weakest level since May 2009, because of increased global risk aversion on concerns of a possible withdrawal of U.S. stimulus measures and speculation by local investors about policymakers' tolerance to a weaker currency. "This is a global movement of the U.S. dollar not something peculiar to Brazil," Alexandre Tombini said in comments provided by the bank's press office during a media briefing in Istanbul, Turkey. "Provided that the exchange rate regime is flexible as it is the case in Brazil the pass through should be limited." Tombini was participating in a seminar organized by the central bank of Turkey in Istanbul. The sharp weakening of the real could push up the value of imported goods, stoking already high inflation in the South American nation that only two decades ago was suffering with hyperinflation. To fight inflation the central bank on Wednesday surprised investors by speeding up the pace of its monetary tightening cycle with a 50-basis-points rate hike. In theory, that rate hike should ease the pressure on the real as it increases the appeal of Brazilian fixed-income assets that lures more U.S. dollars into the local market. However, neither the rate increase nor a central bank intervention in the market on Friday was able to prop up the real. Tombini reiterated that the bank could intervene again to stem "excessive volatility" in the real via the sale of currency in the spot and future market as well as by providing dollar trade lines to exporters. The central bank offered trade lines to Brazilian exporters in 2008 when external financing dried up during the global financial crisis. In the 12 months to mid-May, inflation slowed to 6.46 percent, just slightly below the official target range ceiling of 6.5 percent. Link this Share this Digg this Email Reprints

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