Brazil cenbank FX action is to ensure market functions normally, says Campos Neto

BRASILIA (Reuters) – Brazil’s central bank action in the currency market is to ensure it functions smoothly with no liquidity crunches, bank president Roberto Campos Neto said on Monday, the same day the real slid below 5.50 per dollar to one of its weakest levels since May.

In a presentation to Brazil’s audit court on the steps taken to combat the fallout of the coronavirus pandemic, Campos Neto said currency market interventions are backed by foreign exchange reserves worth around 20% of gross domestic product.

Brazil’s international reserves total around $350 billion, down from a high of around $390 billion just over a year ago.

The real has been one of the world’s worst-performing currencies against the dollar this year, losing 27% of its value on a mix of record low interest rates, a weak economy, and fractured domestic politics.

On Monday, it traded as low as 5.5150 per dollar BRBY, as growing concern about Brazil’s fiscal outlook and speculation surrounding the future of Economy Minister Paulo Guedes slammed the real to its weakest level since May 22.

Two sources from the economic team told Reuters that Guedes’ departure from the government is not on the table.

In his presentation, Campos Neto also said the bank aims to keep monetary conditions stimulative “so that credit can be a channel for boosting growth, without jeopardizing our goal of keeping inflation under control.”

Campos Neto touched on the transfer of FX-related profits to the treasury, which can be done to pay down domestic public debt in certain circumstances when adverse liquidity conditions significantly affect the treasury’s ability to refinance.

Campos Neto said this should be treated with caution.

The real’s steep slide against the dollar in the first half of the year helped boost the real-based value of the central bank’s assets by 478.5 billion reais.

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