By Jamie McGeever
BRASILIA, Apr 8 (Reuters) – The equilibrium level for Brazil’s exchange rate is likely to be around 4.50 reais to the dollar, Economy Minister Paulo Guedes said on Thursday, adding that he expects the local currency to strengthen by the next few months after having exceeded its downward movement.
The real was one of the worst performing currencies in the world last year. It lost 30% of its value against the dollar and is down a further 7% this year as the country’s deteriorating fiscal outlook has spooked investors.
Speaking at a live online event hosted by the Brazilian-American Chamber of Commerce, Guedes said he was confident in the government’s economic and fiscal reforms, massive COVID-19 vaccinations, and a recovering economy that will soon see a rebound in exchange rate.
“The exchange rate (of the dollar) is higher. It should probably be around 4.50 reais now. It surpassed (the level) … In three or four months … probably the exchange rate (of the dollar ) is going to fall, “said Guedes.
The real had depreciated more than 10% against the dollar at the beginning of this year, approaching last year’s all-time low of around 6.00 units per dollar.
Although the central bank raised interest rates in March and is on track to do so again next month, it remains under pressure. Investors are skeptical that the government can cut its record debt of 90% of Gross Domestic Product or avoid breaking its key fiscal “spending ceiling” rule.
At the same time, inflation is above 5% and is likely to rise further, 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 decrease and we will still be moving within our inflation targets,” he said.
($ 1 = 5.57 reais)
(Reporting by Jamie McGeever, Edited in Spanish by Manuel Farías)