Marcela Ayres & Jose Gomes Neto

BRASILIA/SAO PAULO – Bruno Serra, the director of monetary policy at Brazil’s central bank, stated that the bank anticipates devaluation pressures for the real in the next year. He also discussed the possibility of forex intervention.

Serra stated that the bank had been selling $3.5 billion in forex markets since September and has continued to do so ever since. Serra claims that the principal reason behind the devaluation right now is due to the risks to fiscal sustainability.

Also, he mentioned that Brazilian firms have been repaying their foreign debts over the last 2 years. This has resulted in a reduction of normal flows. Serra anticipates that this trend will end in the next year, with an estimated $20 billion annual inflows. This would lower the pressure on the real to devalue.

Serra claimed that foreign investors from Brazil have also had an impact on the forex market by sending money overseas to diversify investment portfolios. According to the central bank director, Brazilians invest an average of $600 million per month in foreign countries. The total volume reached $12 billion.

Serra said that he expected the real to increase against the dollar in the coming months, as liquidity improves. Investors will also react to the higher interest rates differentials following recent Brazilian inflation rate increases.

Brazil’s central banks also said Friday they will auction 500 million worth of currency swaps on Monday. It is offering half what it was selling in comparable sales this week, to help support the real.