SAO PAULO, (Reuters) – President Luiz Inacio Lula da Silva said yesterday he was worried about the weakness of Brazil’s currency and that something needed to be done to tackle what he called “speculation,” as the real plunged to more than two-year lows.
Lula did not elaborate on what measures could be taken to support the real BRBY, which has weakened more than 17% against the U.S. dollar this year and on Tuesday went past 5.70 per greenback for the first time since January 2022.
“I’m obviously worried about it. It’s speculation. I’ve been talking to people to see what we’re going to do,” Lula told a local radio station. “We have to do something – but I can’t tell you what, or I’d be warning my opponents.”
Traders have linked recent foreign exchange moves to a stronger dollar globally and local fiscal concerns, as the market has doubts about the Brazilian government’s ability to meet its goal of eliminating its primary deficit this year.
Lula on Tuesday once again said the government could not spend more than what it has and pledged to cut expenses if needed.
Luciano Rostagno, chief strategist at EPS Investimentos, said that market participants were now worried about the measures the government might take to help the local currency.
“Lula argues that the country has been suffering a speculative attack and must contain it, which leaves investors worried about a potential capital control measure,” Rostagno said.
Finance Minister Fernando Haddad tried to put out the fire on Tuesday, telling reporters that the agenda he has been discussing with Lula was “predominantly fiscal”.
He ruled out changes to the financial transactions tax (IOF) on currency exchanges and said the best move to help the currency would be getting communication right about the central bank’s autonomy and Brazil’s fiscal framework.
Haddad spoke after Lula said the monetary authority could not be led by someone with political bias, feeding a public feud with central bank head Roberto Campos Neto that many cite as one of the reasons behind the real’s recent weakness.
Lula and his allies have long seen Campos Neto as a political rival, arguing that he was appointed by former far-right President Jair Bolsonaro and blaming him for high interest rates in the country.
Campos Neto’s term ends at the end of this year and Lula will appoint his successor.
