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Brazil Real Needs to Weaken for Growth, Barbosa Says

November 5th, 2009
R$1 note front

R$1 note front

Brazil’s real needs to weaken as much as 19 percent against the dollar for sustainable economic growth, said Nelson Barbosa, secretary of economic policy.

An exchange rate of 2.1 to 2.13 per U.S. dollar would be best for growth, Barbosa told reporters at an event in New York. The currency traded at 1.7207 at 2:53 p.m. New York time. It has advanced 34 percent this year, the biggest gain among the 16 most-traded currencies tracked by Bloomberg.

“We know too much appreciation can harm growth,” Barbosa said at a Brazilian-American Chamber of Commerce event in New York. “Calculations indicate that today the real is not at a level that is neutral for growth and it tends to harm growth in the medium term.”

The exchange rate that presents the best prospects for expansion fluctuates day to day according to the price of commodities, said Barbosa, a former deputy finance minister.

“Because it fluctuates too much we don’t have a target for the foreign exchange rate,” he said. “What we do is evaluate if the rate is good or bad for growth.”

Brazil’s government is “satisfied” with the impact of a 2 percent tax on foreign capital investments in stocks and bonds, Barbosa said. The tax has helped stem gains in the currency by reducing investments that were “purely speculative,” he said.

The real has declined 0.2 percent since the so-called IOF tax was announced on Oct. 19.

By Fabiola Moura

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