November 20, 2019 / 8:01 PM / 16 days ago

UPDATE 1-Brazil FX intervention likely only when liquidity an issue -central bank chief

(Adds detail, comment)

By Marcela Ayres and Jamie McGeever

BRASILIA, Nov 20 (Reuters) - Brazil’s central bank president Roberto Campos Neto said on Wednesday intervention in an otherwise free-floating and flexible exchange rate regime is a policy option only if the lack of liquidity demands it.

Campos Neto’s comments appear to indicate the central bank has little immediate desire to intervene in the currency market to support the real, which this week posted its lowest ever daily close at 4.2061 reais per dollar.

“The exchange rate is floating. We intervene when there are liquidity gaps,” Campos Neto said.

Earlier on Wednesday, President Jair Bolsonaro said that he would like to see the dollar below 4.00 reais, noting that several factors, including international trade tensions, were weighing on the real.

Addressing a congressional budget committee in Brasilia, Campos Neto said the currency’s recent fall has not been accompanied by a deterioration in Brazil’s risk outlook, unlike in the past when depreciation was matched by other market indications of rising risk.

He said the weakening exchange rate has not affected inflation expectations either. If it does, then the central bank will react, he said.

One of the biggest factors behind the real’s slide has been Brazilian firms, notably oil giant Petrobras, taking advantage of low long-term interest rates to pay down foreign debt, Campos Neto told lawmakers.

The real’s decline on the global foreign exchanges has also accelerated since Brazil’s mega oil auction earlier this month failed to attract the foreign demand, and hence dollars, that many had banked on.

It is one of the worst-performing emerging market currencies against the dollar this year, and its slump to within three cents of its record low of 4.25 per dollar had prompted some speculation that the central bank might soon intervene.

But market participants poured cold water on that, and Campos Neto’s comments on Wednesday appeared to vindicate that view.

Campos Neto also said on Wednesday that the central bank could repeat its last three policy moves and cut interest rates by another half percentage point, although any further moves will be carried out in a cautious manner.

$1 = 4.1950 reais Reporting by Marcela Ayres Writing by Jamie McGeever; Editing by Steve Orlofsky Editing by Chris Reese

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