Reuters: US Dollar Report: Brazil should keep real weaker than 2.2/dlr -former deputy FinMin

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Brazil should keep real weaker than 2.2/dlr -former deputy FinMin Sep 27th 2013, 01:38 RIO DE JANEIRO, Sept 26 | Thu Sep 26, 2013 9:38pm EDT RIO DE JANEIRO, Sept 26 (Reuters) - Brazil can no longer rely on currency gains to control inflation and the government should keep the real weaker than 2.2 per dollar to boost domestic industry, former Deputy Finance Minister Nelson Barbosa said on Thursday. In his first public speech in Brazil after leaving the job in June, Barbosa sounded more outspoken about the challenges facing the government of President Dilma Rousseff, who has been struggling to spur economic growth while battling inflation. He said the Brazilian currency has gained excessively in real terms over the past several years, so much that "we no longer have the same room for currency appreciation that we had 10 years ago to help control inflation." "Right now, I believe it's not recommended to let the real gain much beyond 2.2 per dollar. Compared to what you see in other countries, it would also be excessive to let it weaken toward 2.5 per dollar," he told journalists after speaking at an economic conference. The real , which traded around 1.55 per dollar by mid-2011, weakened to as much as 2.45 per dollar late last month as prospects of less U.S. stimulus and a deterioration in Brazil's economic fundamentals hit investors' appetite for risk. Barbosa said Rousseff is trying to boost Brazil's industrial competitiveness by promoting investment in infrastructure and education, but acknowledged that such a strategy will only bear fruit in the medium- to long-term. In the short-term, he said, the government is left with only two other options to reduce Brazil's growing labor costs: either push unemployment up and sacrifice economic growth like Europe is doing; or weaken the exchange rate to reduce real wages in foreign currency. "Brazil has chosen the growth alternative," Barbosa told an economic conference. "What is the problem with this strategy? It takes some time for it to work. It may not be fast enough to adjust labor costs at the speed that the balance of payment needs." While recognizing that a weaker exchange rate is needed to support the economy, Barbosa said the government should keep its floating exchange rate regime, avoiding a sharp currency depreciation that would fuel inflation, but also "resisting the temptation" to strengthen the real too much in order to meet the country's inflation target. Link this Share this Digg this Email Reprints

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