Mantega challenges IMF and says Brazil will continue currency intervention.

Agência Brasil (BBC Brasil) – Finance Minister Guido Mantega challenged the head of the International Monetary Fund (IMF), Christine Lagarde, on Thursday (19) regarding the exchange rate of emerging countries. He said that Brazil will continue to intervene to reduce the value of its currency. In Washington, where he arrived to participate in the annual meetings of the IMF and the World Bank, the minister recalled that Brazilian industry has lost competitiveness due to the rise of the real, supposedly caused by the lack of action from the financial authorities of other countries.

"In the case of Brazil, we are one of the countries that suffer the most from currency appreciation. Our industry has lost competitiveness in part because of the devaluation of other countries' currencies," said Mantega. "We are proving, in practice, that by intervening in the exchange rate – since other countries have decided to use this strategy – we can reduce the disadvantage that our industry has had as a result of an overvalued exchange rate," he added.

Mantega's statement was a response to IMF Managing Director Christine Lagarde, who had said that emerging countries need to make adjustments or accept a higher exchange rate. "Europe is not the only place where action is needed. Emerging markets must also address their problems. Other emerging markets need to pay attention to capital flows and manage them with the necessary macroeconomic prudence tools, adjust their currencies appropriately, and accept the evolution of these currencies," Lagarde had stated.

Mantega classified the statement as "a mistake." "Not at all. We have a clear relationship regarding this and, in fact, we have the support of the IMF members. In our case, it [intervention in the exchange rate] is absolutely necessary and we will continue to do it," he added.

Regarding the reduction of interest rates by Brazilian banks, the minister said that the financial sector is reacting positively to the demand for a reduction in spreads – the difference between the interest rates charged to customers and those paid by banks. "Something similar to what is happening in the United States and the European Union was occurring in Brazil: the deleveraging of banks. Following the slowdown last year, the financial sector continued to reduce the supply of credit and increase the cost of financing," he commented.

According to Mantega, lower interest rates and cheaper credit will boost the country's growth. "There has been a change. I welcome this change that the financial sector is making, willing to reduce interest rates and the spread, thus giving the Brazilian people the opportunity to consume at lower rates. This will stimulate consumption, investment and economic activity," he concluded.