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Brazil econ minister says real's slump overshot, says rate should be near 5.00/dollar

11/23/2020 | 04:09pm

BRASILIA, Nov 23 (Reuters) - Brazil's real, which hit a record low in May and is down 30% against the dollar this year, has overshot, Economy Minister Paulo Guedes said on Monday, pegging its equilibrium level closer to 5.00 per dollar.

In an online event hosted by financial research firm Empiricus and fintech Vitreo, Guedes said the treasury will have no problem rolling over 600 billion reais of debt in the first four months of next year, half of which has already been sourced.

Guedes reiterated his view that Brazil's policy mix is one of low interest rates and a weak exchange rate, the opposite of what existed under the previous government when interest rates exceeded 10% and the real was as strong as 2.00 per dollar.

"The economy is much healthier with interest rates around 2% and an exchange rate of 5.00 ... that's much better. The exchange rate even overshot," Guedes said.

"When you change the balance level (between interest rates and the exchange rate), you get big moves past the equilibrium rate and then it comes back again. I think we have overshot, if we make progress with reforms," Guedes said.

In May the real weakened to almost 6.00 per dollar, and on Monday ended trading around 5.45 per dollar. Guedes and central bank officials have said a weak exchange rate is a natural consequence of interest rates being slashed to a record low 2.00%.

The central bank has intervened selling billions of dollars in the spot and derivatives markets this year to slow the real's fall. Guedes also said on Monday that the weak currency is boosting exports and low rates are fueling a construction boom.

In wide-ranging remarks, Guedes also said he did not "see any problems with this government (refinancing)," adding "we don't think we're in a dramatic situation."

He said 300 billion reais of the 600 billion reais due to be refinanced in Jan-April is already covered. He pointed to 200 billion reais of central bank cash transferred to the treasury and just over 100 billion coming from deleveraging public banks.

($1 = 5.45 reais) (Reporting by Jamie McGeever and Marcela Ayres; Editing by David Gregorio)

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