Brazil's Meirelles defends forex regime amid talk

Sat Apr 5, 2008 1:50pm EDT
By Walter Brandimarte
MIAMI, April 5 (Reuters) - Brazil's central bank chief Henrique Meirelles said on Saturday the government was committed to a floating currency rate and inflation targets, but did not deny reports that some government officials would be discussing changes to those regimes.
Speaking to reporters in Miami, where he was attending the annual meeting of the Inter-American Development Bank, Meirelles said targeting inflation and specific foreign-exchange levels at the same time were "incompatible" tasks.
"Countries which tried to have cloaked, non-explicit currency targets also had serious inflation problems," he said during a news conference.
Asked whether sectors of the government had debated changes to those regimes, Meirelles said: "What I can say is that Brazil has an inflation-targeting system that has worked exceptionally well, as seen by its recent economic growth, job creation, and the recent inflation trajectory."
"Hence, what is important, and that was reaffirmed by (Finance) Minister (Guido) Mantega in an interview, is that Brazil has an inflation-targeting system, is committed to that, and will not adopt any other regime that would compromise its inflation-targeting system. Period."
The debate about changes in Brazil's orthodox economic policies resurfaced as Latin America's largest economy is expected to post its first current account deficit in 2008, after five consecutive years of surpluses.
The deficits are a result of growing imports and increased profit remittances by multinational companies. But the central bank chief said Brazil did not need to consistently deliver current account surpluses, as strong foreign direct investments were more than enough to finance the outflow.
He also rejected the idea that current account deficits would make Brazil vulnerable again to external shocks.
"That is why we have a floating-rate currency regime and high foreign reserves. It is up to the market to see if there is any reason to be uncomfortable and, if such a discomfort exists, then it will be reflected in the foreign exchange rate," he said.
Brazil's exporting sector has long complained that the strength of the country's currency, the real BRBY, has been undermining its external competitiveness, even as Brazilian exports are still on the rise.
According to Meirelles, the government may adopt localized measures to support a specific productive sector that might have been hit by unfavorable economic conditions. (Editing by Michael Christie and Eric Beech)