The Central Bank (BC) needs to act in the market to seek a level of balance for the dollar, said this Friday (20) the Minister of Finance, Fernando Haddad. At a breakfast with journalists, the minister admitted communication problems during the release of the spending cut package that created noise in the financial market.
“We have to correct this ‘slip’ of the dollar here. Not in the sense of looking for a dollar level, of aiming for a goal, looking for a level. The level at which the BC should act is to seek balance. Whenever there is dysfunction due to uncertainty, insecurity, in the exchange rate and interest rate market, the Central Bank must promote corrections in this regard”, declared Haddad.
Minister Fernando Haddad, during breakfast with journalists – Fabio Rodrigues-Pozzebom/ Agência Brasil
Although he defended the recent interventions in the exchange rate by the Central Bank, the Minister of Finance reiterated that the regime is a floating exchange rate, with the monetary authority acting in the market only in moments of dysfunctionality. “The BC’s problem is its inflation target. There’s nothing else to [a autoridade monetária] have to worry. You have to bring inflation to the target within an adequate period of time for the target to work. To achieve this, it will maintain the restrictive interest rate”, added the minister.
The minister stated that part of the recent rise in the dollar is due to international factors, such as the results of the North American elections and the reduction in expectations of a drop in interest rates in the United States. However, he admitted “communication problems” in the release of the spending cut package that caused noise in the financial market.
“There was a communication problem at the end of the year that caused the dollar in Brazil to appreciate more strongly than in its peers. It is necessary to correct communication, take measures and ensure that this brings the exchange rate not to a specific level, but to a functional situation”, added the minister.
On the eve of the presentation of the mandatory spending review package, the dollar soared, and the stock market fell after the announcement that the government intended to send, along with the package, a project to increase the Income Tax (IR) exemption range for R$5 thousand. Only hours later, information was leaked that the measure will be offset by the taxation of income above R$50,000 per month with a rate of 10% of income tax withheld at source, which, according to the minister, would offset the increase the exemption range.
Interventions
After injecting US$8 billion into the foreign exchange market on Thursday (19), the Central Bank continued to operate in the market this Friday. The monetary authority sold US$2 billion in the spot auction of dollars from international reserves and US$3 billion in a line auction, in which the BC sells foreign currency to buy it back in a few months.
With actions in recent days, the volume of BC interventions in December reached US$ 25.76 billion, the highest value since the creation of the inflation targeting regime in 1999.
Commitment
Haddad made a commitment that the Income Tax reform proposals will have a neutral impact on revenue. “This is a commitment between the government, party leaders and the presidents of the Chamber [dos Deputados] and the Senate. We did this in the tax reform on consumption, which created a barrier to avoid increasing the tax burden”, highlighted the minister.
In the case of Income Tax reform, Haddad stated that the government’s objective is to maintain neutrality, so that Income Tax collection remains stable. “We want the sum of Personal and Corporate Income Tax collection to remain stable. The objective is to correct distortions. In the case of income, it will be more than one project. They are different approaches to the same topic. In the case of income, it is possible to automatically correct distortions”, he added.
