Brazil has firepower to defend currency: Meirelles

Mon Nov 10, 2008 10:56am EST
SAO PAULO (Reuters) - Brazil has ample international reserves to continue intervening in the currency market and the amount the central bank could sell in foreign exchange swaps is not limited to a previous estimate of $50 billion, the bank's president Henrique Meirelles told Reuters on Sunday.
Meirelles spoke after meeting finance officials and central bankers from the G20 group of advanced and emerging economies at which member nations agreed on the need for a coordinated action to combat the global financial crisis.
The Sao Paulo meeting was expected to help lay the groundwork for an emergency G20 leaders summit next weekend in Washington.
Here are some highlights from the interview with Meirelles.
Question: The central bank's plan to sell $50 billion in foreign currency swaps will be an upper limit?
Meirelles: No. This was a decision by the board, that this volume was what was available, but nothing prevents us from changing that, for more or for less. It's important to consider that for that position in currency swaps, which work like the sale of dollars in the futures markets, the central bank has a natural hedge from its reserves. So we have huge latitude to make those decisions. To the extent that Brazil has that volume of reserves, we have a very comfortable position to act in the futures markets.
Question: What is the most pressing issue about the global financial crisis in the short term that could be a cause of concern?
Meirelles: The big issue to be monitored in the short term is exactly the restriction of credit, not only in the United States and Europe, but the restriction of international credit and the consequences of that for the rest of the world and for the functioning of markets. That's because in some countries, particularly, the markets are dysfunctional.
(Reporting by Isabel Versiani and Daniela Machado, Writing by Elzio Barreto, Editing by William Schomberg)