Halister News

(Bloomberg) -- BRL is overvalued and could have reached 3.00/USD or even stronger if BCB hadn’t decided to intervene with FX reverse swap auctions, Alberto Ramos, senior economist at Goldman Sachs, says in interview.

• BRL’s fair value, compatible with country’s weak growth, ranges from 3.70 to 4.20; “the last thing Brazil needs now is a strong currency”
• Brazil will need more reforms to reduce production costs and improve productivity to create conditions to survive with strong currency, Ramos says
  • Overhaul of pension and tax regimes are needed, along with cut in labor costs and opening external trade
  • Country also need to slow its inflation to reduce export costs
  • As long as reforms aren’t implemented BCB may keep offering swaps; eventually may buy spot dollar to halt BRL gains
• NOTE: See Inside Brazil for market commentary