According to Carlos Neto, the Central Bank has a large arsenal and is ready to make a greater impact on the foreign exchange market.
On Wednesday (8), through an internet broadcast by Credit Suisse bank, the president of the Central Bank (BC), Roberto Campos Neto, stated that the BC is prepared to act more expressively in the foreign exchange market at any time when necessary. And although the exchange rate is floating, there is a policy to avoid excesses.
“There is a policy to avoid excesses, align the exchange rate and stabilize the markets,” said Costas. He also pointed out that the Central Bank has a “very large arsenal” to act in the exchange market.
“Part of the market advocated creating more aggressive exchange rate programs, we always understood that it was important to provide liquidity, not to influence the price trajectory, but always looking at the real in relation to other currencies.
We have a very large arsenal. We understand that the real has depreciated a lot and a little more in relation to other currencies. We are prepared at any time to do something bigger, if necessary, in the exchange rate, but we understand that the exchange rate is floating”, he said.
New Measures
Campos Neto said there had been criticism that the measures adopted to deal with the crisis caused by the coronavirus pandemic had been slow. However, he stressed that compared to other countries, such as the United States, this was not true.
“And the impact of the measures, if you consider what Brazil has done in terms of liquidity and capital, 16.7% of GDP [Gross Domestic Product], there is no other emerging country that has done anything similar. When you look at fiscal power, in terms of new money, Brazil is slightly above emerging markets.”
Contracts
The president of the Central Bank also stated that he has emphasized the importance of fulfilling contracts, such as those for rent and credit. “The crisis with interruptions in contracts becomes much more acute, with a much longer recovery time. We have seen evidence of breach of contract, attempted breach of energy and rental contracts. The part of [credit] consigned, which would not make any sense because the consigned is largely linked to a [public] servant who has job security, will not have its salary affected. From the government's point of view, it is better to have a slightly worse inspector and be sure that all contracts are fulfilled,” he added.
Impact on the economy
The president of the BC believes that the impact of the crisis on the Brazilian economy will depend on the duration of social isolation.
“It is a virus that has very low lethality, but contamination is very high. And it obviously has trade off [pros and cons of a decision] between having a faster curve [increase in cases of the disease] and creating immunity and the economic cost. The Central Bank does not enter into the discussion of these choices. We understand that it is a government policy”.
“What can be done is to try to convey credibility to people that the government will help (…) it will not leave any ruptures, it will look at the most affected sectors.
The government does not want to promote winners and losers, it wants everyone to be a winner. [But] some in this crisis will be losers, they will be more impacted than others. The government will try to make this happen in the most linear way possible,” said Campos Neto.
He added that there would almost certainly be a downturn in the economy this year. “Maybe the next two or three weeks are the most important in terms of seeing how it plays out.”