Mantega: those who bet on the dollar rising will lose.
"It's important to make it clear that this pressure on the dollar, in our case, is not capital flight, it's not a loss of reserves, as in other countries. Here it's hedging and speculation," said the minister. He also took the opportunity to send a message to speculators: "You can win, but you can lose. Because our exchange rate is floating. So, you need to be careful. There was a time when our exchange rate only fluctuated in one direction. If you bet too much on one direction, you can get burned."
SAO PAULO, Aug 24 (Reuters) - Finance Minister Guido Mantega reinforced the message that the government will combat volatility in the exchange market because the current level is not favorable for the economy, and reminded that those who speculate on the rise of the dollar against the real may suffer losses.
"This rise with this volatility is not good for anyone, because entrepreneurs delay their operations. Even those who profit from a stronger dollar, the exporters, pause to see how high the dollar will go. It disrupts everyone," the minister stated in an interview published this Saturday by the Folha de S.Paulo newspaper.
The Central Bank this week launched an offensive to curb the appreciation of the Brazilian currency through a foreign exchange auction program with a daily intervention schedule involving the sale of traditional currency swaps—equivalent to sales in the futures market—and the offering of lines of credit, or the sale of dollars with a repurchase commitment. According to the Central Bank, the objective is to "provide currency hedging to economic agents and liquidity to the market."
According to Mantega, the surge in the currency, which rose more than 17 percent between May and last Friday, is due to a localized movement in the dollar futures market, with companies seeking hedging and speculators acting.
"It's important to make it clear that this pressure on the dollar, in our case, is not capital flight or a loss of reserves, as in other countries. Here it's hedging and speculation," he stated.
And he took the opportunity to send a message to speculators: "You can win, but you can also lose. Because our exchange rate is floating. So, you need to be careful. There was a time when our exchange rate only fluctuated in one direction. If you bet too much on one direction, you might get burned."
To prevent the rise in the Brazilian currency from further harming the economy, the Finance Minister appealed to businesses not to pass on the currency appreciation to prices. "It is advisable that, if this rise in the dollar is reversed, and it can be reversed, businesses do not pass this on to prices. It would be good if they didn't," he stated, acknowledging that if it remains "persistently" high, it could bring inflationary pressure.
Mantega reiterated that Petrobras should not take the soaring dollar into account when setting fuel price adjustments, but indicated that an increase could still occur this year.
"There will be no pass-through of exchange rate increases during periods of volatility. That's the rule at Petrobras, which works with an average tariff, not passing on peaks. We had an exceptional situation, which doesn't mean there won't be an adjustment."
The minister also said that the price increase has a seasonal trajectory and, after reaching its lowest level in July, is accelerating again. "The important thing is the speed of growth, so that it is within normal parameters. For example, that August's inflation is around 0,30 percent," he said.
Inflation, as measured by the Broad National Consumer Price Index (IPCA), reached 0,03 percent in July, the lowest rate in three years, falling back below the government's target ceiling for the accumulated 12 months.