UPDATE 1-Brazil FX has exceeded, the balance level is around 4.50 reais per dlr -econ minister | Instant News

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By Jamie McGeever

BRASILIA, April 8 (Reuters) – The equilibrium rate for Brazil’s exchange rate may be around 4.50 reais per dollar, Economy Minister Paulo Guedes said on Thursday, adding that he expects the currency to strengthen in the coming months after overcoming the downside.

Real was one of the world’s worst performing currencies last year, losing 30% of its value against the dollar, and has slumped a further 7% this year as the deteriorating fiscal outlook has scared investors.

Speaking at a live online event hosted by the Brazilian-American Chamber of Commerce, Guedes said he believed the government’s economic and fiscal reforms, mass vaccination against COVID-19 and economic recovery would soon see the exchange rate rebound.

“The (dollar) exchange rate is higher. Maybe it should be around 4.50 now. That is indeed an overshoot. In three or four months … maybe the (dollar) exchange rate will fall,” said Guedes.

“I will be very careful to bring money from abroad when we have double-digit exchange rates and exchange rates that are too high. I would be very willing to bring money from abroad now. I don’t think I will lose money if I move. and invest now, “he added.

The real value has depreciated more than 10% against the dollar earlier this year, approaching last year’s record low near 6.00 per dollar.

Even though the central bank raised interest rates last month and is ready to do it again next month, it remains under pressure. Investors are skeptical that the government could reduce its record debt by 90% of gross domestic product, or avoid breaking its main ‘spending ceiling’ fiscal rule.

At the same time, inflation is running above 5% and is likely to continue to increase, well above the central bank’s year-end target of 3.75%. Guedes said the government’s fiscal discipline and rising interest rates should curb it.

“In a few months I think it will subside and we will still move according to our inflation target,” he said.

($ 1 = 5.57 reais) (Reported by Jamie McGeever Editing by Marguerita Choy)

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