Real Rises; Meirelles Signals No Dollar Sales: Latin Currencies

By Michael Smith

Rio de Janeiro, April 28 (<a href=quote.bloomberg.com>Bloomberg) -- Brazil's currency surged after the country's central bank chief said it has more room to gain after this year's 19 percent rally.

The real rose 1.5 percent to 2.9650 per dollar at 2:31 p.m. New York time, after Bank President Henrique Meirelles said ``we still have lots of room to see the currency appreciate.'' The real is the second-best performing currency among the 59 tracked by Bloomberg. The Argentine, Colombian and Chilean pesos rose.

The gains extended a rally that's boosted the value of the real 13 percent in April, threatening to curb exports by making Brazilian products more expensive abroad, some government officials have said. The gains, fueled by confidence President Luiz Inacio Lula da Silva will cut spending and make public debt payments, has divided the ruling coalition over mounting a bid to slow the currency's gains.

The real will keep gaining to reflect the flow of dollars from investment and exports,'' said Flavio Datz a trader with Agora DTVM, a Rio de Janeiro brokerage. Meirelles just made it clear the market will set the price, not the government.''

Meirelles, referring to analysts' concern about the rising currency, said in a speech to the Council of the Americas in Washington that there's no reason to worry.'' The real is still undervalued'' when compared with the average for a basket of 15 currencies since 1985, Meirelles said.

Exporters

The real gained earlier today after Meirelles and Brazilian Finance Minister Antonio Palocci last week said the government won't try to halt the currency's climb to boost exports.

I don't think there will be any intervention,'' Sergio Haberfeld, chairman of Dixie Toga SA, a Brazilian plastic container maker that gets 12 percent of revenue from exports. For an exporter, the higher the dollar the better.''

For Dixie Toga, a real at 3.10 per dollar would be ideal for boosting exports across Latin America, said Haberfeld.

If the currency strengthens beyond 2.8 per dollar, the government likely will try to reverse the trend to ensure exports remain competitive, said Sergio Machado, head of the Treasury desk at Banco Fator SA in Sao Paulo.

The Planning Ministry's chief economist Jose Carlos Miranda on April 25 said the stronger currency is curbing exports and the government plans to limit the real's rise by refusing to refinance securities linked to the dollar.

Brazil is enjoying record exports of soybeans, cars, iron ore and other goods and this year, and Lula has made boosting exports the lynchpin of efforts to boost economic growth.

Brazil's benchmark 8 percent bond maturing in 2014 rose for the fourth day in five, adding 0.19 cent on the dollar to 85.94, paring the yield to 11.55 percent, according to J.P. Morgan Chase & Co.

Regional Gains

Argentina's peso rose for the fifth day in eight to extend its 18 percent gain on the year after the country's presidential first-round vote yesterday.

The peso rose 0.7 percent to 2.8575 per dollar from 2.8780 last week.

Former President Carlos Menem won 24 percent of ballots, based on 78 percent of the vote counted in yesterday's presidential election. Nestor Kirchner, governor of Santa Cruz province, won 22 percent.

Both are Peronist Party members and will face off in a second round of voting on May 18.

Colombia's peso extended earlier gains to rise for the fourth day in six after the central bank raised the overnight lending rate 100 basis points to 7.25 percent.

The currency strengthened 0.9 percent to 2,885 per dollar, its strongest level since Jan. 7, after the bank's second rate increase this year in a bid to slow inflation.

Chile's peso rose for the first day in three, gaining 0.7 percent to 708.35 per dollar from 713.25 last week.

Mexico

Mexico's peso rose for a fourth day to it highest level since early January, pacing gains by U.S. stock markets amid optimism for renewed growth in the world's biggest economy and Mexico's largest export market.

The peso rose 0.3 percent to 10.3768 per dollar from 10.4117 last week, raising its gain in April to 3.8 percent.

The U.S. buys about 85 percent of Mexico's exports, which account for about a quarter of its $600 billion economy, and provides Mexico with about 70 percent of its foreign direct investment.

Peru's new sol strengthened 0.1 percent to 3.4636 per dollar, and has gained 1.5 percent in 2003. Venezuela's bolivar was fixed at 1,598 per dollar earlier this year. Last Updated: April 28, 2003 14:31 EDT