Wednesday, October 14, 2009

U.S. Dollar to Fall Further Versus Real

The U.S. Dollar could reach R$ 1.60, according to Gustavo Loyola, former president of Brazilian Central in a report published by Brazilian media yesterday. He also says he does not see inflationary pressures and interest rates should rise only at the end of 2010.

The dollar at $1.60 means a further drop of 8%, from the current record lows.

Mr. Loyola says that faced with the prospect of strong economic recovery, the trend is for appreciation (dollar devaluation) and trying to stop it is like rowing against the current".

Loyola also said he does not see inflationary pressures in Brazil in the coming months and if the central bank were to raise the interest rate it will be by the end of 2010.

Loyola does not think the Brazil Sovereign Fund (FSB) could be used to strengthen the process of buying dollars in the market and stop the drop of the U.S. currency. "I remain very critical of the fund. Take U.S. dollars of reserves and put in another box is not sovereign fund strict sense," he said. "So far the fund was not used for anything," he added. The former president of BC noted, even that might not even be necessary to continue to accumulate international reserves, because it "has some marginal cost in the Selic rate.

The former president of the BC believes that Brazil is able to grow 5% next year and that growth will be buoyed by domestic consumption. "Brazil is seen as the place to be for its domestic growth," he said. That means a strong inflow of funds in the country going forward for investors betting on Brazil, not to speculate, but to make investments for medium and long term.

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