The Brazilian ministry foresees a target of foreign exchange reserves-sources

A screen shows exchange rates for the Brazilian real and U.S. dollar and several other foreign currencies in Rio de Janeiro, Brazil March 12, 2020. REUTERS/Sergio Moraes/File Photo

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BRASILIA, Sept 14 (Reuters) – Brazil’s economy ministry is considering a target for the country’s large foreign exchange reserves, two sources told Reuters, as inflation remains the top concern among voters ahead of a presidential election.

The plan would set a target with a minimum and maximum amount of foreign currency that Brazil should keep in its reserves, which currently stand at $338.7 billion.

The plan for the floating strips is preliminary and subject to change or the government may decide not to pursue the idea, the officials said, requesting anonymity due to its sensitive nature.

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The Ministry of Economy and the central bank declined to comment.

Sales of foreign exchange reserves by the central bank are helping to contain the rise in the dollar against the Brazilian real, mitigating inflationary pressures.

The central bank, which operates at arm’s length from the federal government, said it only operates in the foreign exchange market when it identifies high volatility.

Soaring consumer prices are a hot topic in Brazil ahead of the October elections, with President Jair Bolsonaro trailing leftist former President Luiz Inacio Lula da Silva in the polls.

The target was first reported on Tuesday by the O Globo newspaper.

A target with floating tapes would prevent political manipulation of reserves, especially in an election year, an official said.

This would directly interfere with exchange rate policy which is entirely the responsibility of the central bank.

The existence of such a plan surprised the most senior technicians of the Ministry of the Economy, who declared that there was no agreement on a target for reserves. A central bank source criticized the idea, saying the exchange rate was “an external variable, you have no control over it.”

“That’s stupid,” said Alexander Schwartsman, a former central banker. He said the currency reflected economic fundamentals and it did not make sense to control its fluctuations.

Lula said he would not touch the country’s foreign exchange reserves if elected.

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Reporting by Marcela Ayres and Bernardo Caram; Editing by Lisa Shumaker

Our standards: The Thomson Reuters Trust Principles.

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