Thursday, April 14, 2011

Currency Wars Still On; Brazil Accuses of Speculation Not Protection

So says Brazil's Minister of Finance of Brazil, Guido Mantega, again criticizing the loose monetary policies in advanced countries.

He is going to ask the G-20 nations to adopt restrictions on derivatives and hedge funds in rich countries as a means to reduce global inflationary pressures .
The world is still struggling with the consequences of global economic and financial crisis, which is most apparent in the divergence in growth rates among advanced economies and emerging markets, Mantega said.
"The main culprit is the delayed recovery of the advanced countries and that leads them to practice monetary policies that are too expansive,"  "While advanced countries have not fully recovered from the crisis, we have a competition for markets, particularly for manufactured goods,"  "So I would say that this war is still going on exchange,"

He said as well that speculation in derivatives markets for commodities like oil and food have pushed up prices, adding to global inflation. Companies must be able to protect its foreign exchange exposure, but the volumes of derivatives are well above the levels of transaction, ", which is speculation, not protection", adding that the levels of leverage should be limited and money to ensure separate contracts should be increased, while the contracts should be registered with a clearinghouse to provide transparency.

Mantega recognized that in a 12-month basis, inflation in Brazil could surpass the ceiling of 6.5% of the government's target range. The inflation target is 4.5%, with a tolerance of two percentage points up or down. "Looking back on a historical basis, it is possible for us to get out of band" at the end of this year, said Mantega. "But what is important is to look forward to the future,"

And with regard to that, unlike many countries, inflation in Brazil will slow this year, the minister said. Mantega expected inflation of 5.7% this year, down from 5.9% in 2010.

Brazil's government is facing a difficult task to control high inflation, high interest rates and a stronger currency. Dealing with inflation by raising interest rates attract more money to Brazil, which strengthens the real and affect the local industry.

Mantega blamed the massive monetary expansion in the advanced countries in large part by creating the problem and said that China and other Asian countries "manipulate" their currencies. "For us it would be better if China and other countries adopted a floating exchange rate,"  "We would have a flow of global capital more balanced."

The president of Brazil, Roussef, is currently in China negotiating trade issues. Mantega said that China is sending "signals" that will reduce the restrictions on Brazilian beef, while Brazil also wants to increase sales of manufactured goods to China.

"We want to export our manufactured goods (for China) and less in terms of export commodities,"  Although defend currencies freely floating, Mantega acknowledged that Brazil had to intervene to prevent the real rise sharply. "The Brazilian economy today is very balanced,"

The government sought to discourage capital flows of short-term capital controls limited, the minister said they are working and will continue as needed. But the government has been careful not to block any action for longer-term investments, he said.

"We will not take actions that are worse than what we're trying to remedy.'s Not worth it. We will continue taking actions very hard to continue this movement interrupting the flow,"

The government's measures have kept the real stable in the first quarter of this year, near the level of $ 1.65 per dollar, while capital inflows from record highs of around U.S. $ 35 billion. Without controls, the dollar could have fallen to $ 1.40 or $ 1.45, according to the minister.
The minister stressed again that the government set a target for money and warned investors that the currency may fluctuate in both directions. "These investors should be careful not to invest in only one direction, because they may be surprised," As the currency is floating, it can turn the other way," he added.

We track all currency ETFs live here.

With news from O Estado de Sao Paulo.

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