March 5, 2020 / 7:40 PM / 3 months ago

UPDATE 1-FX market nervous, recent moves large - Brazil economy minister

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By Jose Gomes Neto

SAO PAULO, March 5 (Reuters) - Brazil’s currency market is nervous and the real’s fall recently has been large, Economy Minister Paulo Guedes said on Thursday, but there is no sign of capital flight and the increased demand for hedging from market participants is “absolutely normal.”

Speaking in Sao Paulo on the day the real fell to a new all-time low of 4.66 per dollar, Guedes repeated his view that the exchange rate is a floating one, and expressed little immediate concern about the depreciation.

Guedes said the currency could fall to 5 reais per dollar in the extreme scenario of the president or leader of Congress resigning, or a major economic policy blunder. But otherwise, the exchange rate only becomes a worry if it moves too quickly, he said.

“It’s a floating currency. If you do a lot of nonsensical things, it could go to that level (5 reais per dollar). If you do a lot of sensible things, it can go the other way,” he told reporters in Sao Paulo.

“When it (the dollar) rises too quickly, that’s a concern, that’s why the central bank acts,” he said.

The central bank intervened in the forex derivatives market three times on Thursday, selling $3 billion in swaps contracts as the real’s slide gathered steam, taking its losses to 4% so far this week and 14% so far this year.

But pressure is mounting on the central bank to tap its $360 billion stockpile of foreign reserves and sell dollars outright to ease the pressure on the real.

Guedes repeated his bullish view on the Brazilian economy, insisting that it would grow by more than 2% this year, despite a wave of private sector forecast revisions to around 1.5% and a rapid slowdown in the global economy.

Coronavirus will likely shave between 0.1 and 0.5 percentage points off growth this year, Guedes said, noting that it would be on track for around 2.5% otherwise.

Official figures on Wednesday showed that Brazil’s growth slowed to 1.1% last year, the lowest in three years, although Guedes said that estimate could be revised upward.

Reporting by José Gomes Neto Writing by Jamie McGeever Editing by Chris Reese and Richard Chang

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