President of Central Bank stresses that Brazilian economy is resuming its activity and that Brazil will exit the crisis with a higher volume of international reserves

On Wednesday (27), during a public hearing at the Chamber, the president of Central Bank (BC), Henrique Meirelles, said that the appreciation of the Real regarding the Dollar in the last weeks results from the good performance of Brazilian economy during the global crisis, and not from a speculation movement of investors seeking Brazilian interest rates.

Meirelles was at the Chamber to speak about monetary, credit and foreign-exchange policies, as the Law on Tax Responsibility determines. But the impact of the crisis on Brazil dominated the debates, especially regarding foreign exchange and interest rates.

According to him, four factors explain the current appreciation of the Real regarding the Dollar: the injection of foreign capital in the stock exchange of São Paulo; the resuming of loans to Brazilian companies abroad; the growth of foreign investments in Brazil; the relation between the Real and the price of commodities exported by Brazil, such as soybeans and iron ore.

Meirelles stressed that, when the price of commodities raises, such as now, the Real is appreciated. “All that involved a higher flow of capital”, he said. According to BC, from the beginning of last month until the 22nd, US$3.086 billion entered this country, which has been the best performance since April 2008.

Goal
Despite that appreciation – the Dollar closed on Wednesday at R$2.016 for sales, a drop of nearly 6% regarding its rate at the beginning of the month -, which harms Brazilian exporters, Meirelles denied any plan to change current policies, especially regarding the definition of a target-price for the Dollar.

"Experience shows that we cannot have a macro-economic balance, which is both domestic and foreign. Neither can we keep watching specific sectors”, he affirmed, when replying to the issue raised by Deputy Alfredo Kaefer (PSDB-PR), who is worried with the impact of the devaluated Dollar on revenues from exports.

The president of BC tried to present a positive balance of Brazilian economy, indicating its stronger points, such as high international reserves, controlled inflation and resuming of domestic bank loans. Despite describing himself still as cautious, he affirmed that the indicators show that the economy is resuming its activity. “Brazil is one of the few countries which are not creating macro-economic imbalances to get rid of the crisis”, he said.

Spread
As many deputie deputies asked him about banking spread, Meirelles stressed that the actuation of BC is limited to the incentive to competition in the banking market. He said that the actuation of public banks and of small and medium ones can force the reduction of spread.

Meirelles reminded that, during the liberation of R$99.8 billion of the compulsory deposit, at the end of last year, they especially destined R$41.8 billion to small and medium banks. According to him, that capitalization raised the capacity of those institutions to grant loans, which should contribute to the drop of the spread.

Deputies Pedro Eugênio (PT-PE) and Júlio Cesar (DEM-PI) asked if he agreed with the bill presented at the Chamber, which establishes goals for the reduction of banking spread (PL 5258/09). Meirelles just said that he will study that subject and present a contribution to its authors. PL was represented by Eugênio and by Deputies Vignatti (PT-SC) and Ricardo Berzoni (PT-SP).

Reinforcement
The president of the monetary authority also said that BC will keep the reinforcement policy on national reserves, which add up to US$205.2 billion. He stressed, when replying to Deputy Duarte Nogueira (PSDB-SP), that one of the results of the financial crisis was to show that there is not an “ideal amount” to the size of reserves.

"We perceive today that the reserves have to be larger. Now it is the moment to purchase, and we still have a growth margin”, said Meirelles. The policy on accumulation of reserves started to be adopted in 2004. According to the president of BC, Brazil should exit that crisis with a higher volume than when it entered it, what he stressed as an unprecedented fact in Brazilian history.

Report - Janary Júnior
Editing - Marcos Rossi
Translation - Positive Idiomas Ltda