According to Carlos Neto, the Central Bank has a large arsenal and is ready to perform more in the foreign exchange market.
This Wednesday (8), through internet transmission made by the Credit Suisse bank, the president of the Central Bank (BC), Roberto Campos Neto, said that the BC is prepared to act with more expressiveness in the foreign exchange market. 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 “quite large arsenal” to operate in the foreign exchange market.
“Part of the market advocated more aggressive programs for the exchange rate, 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 quite a large arsenal. We understand that the real has devalued a lot and a little more in relation to other currencies. We are prepared at any moment 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 that there were criticisms of the measures taken to face the crisis caused by the coronavirus pandemic that they were time consuming. However, he pointed out that compared to other countries such as the United States, this is not true.
“And also 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 it comes to fiscal power, in terms of new money, Brazil is slightly above emerging markets”.
Contracts
The BC president also stated that he has emphasized the importance of fulfilling contracts, such as rent and credit. “The crisis with interruption in contracts becomes much more acute, with a much longer delay in recovery. We had evidence of breach of contract, attempted breach of energy contract, rent. The payroll [credit] part, which would make no sense because the payroll is largely linked to a [public] servant who has stability, the salary will not be affected. From the government's point of view, it's better to have a slightly worse supervisor and be sure that all contracts are fulfilled,” he added.
Impact on the economy
The BC president considers 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 more accelerated 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 you can do is try to convey credibility to people that the government will help (…) it won't leave any rupture, 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 are going to be losers, are going to have more impact than others. The government will try to make this as linear as possible”, said Campos Neto.
He added that there will 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 performs."
