Emerging Currencies May Be Volatile, Meirelles Says (Update1) - Bloomberg.com

By Fabiola Moura

Oct. 16 (Bloomberg) -- Emerging-market currencies that have been appreciating as economies recover from a global recession may become volatile as markets overprice assets, Brazilian central bank President Henrique Meirelles said.

Central banks need to “alert investors and markets of the risks of exaggeration in the formation of prices, which can lead to future corrections and create unnecessary volatility,” Meirelles said in an interview late yesterday in New York.

The South African rand led declines among emerging-market currencies, dropping 1.4 percent against the U.S. dollar at 8:15 a.m. in New York. Brazil’s real weakened 1.1 percent today.

The real is outperforming the world’s 16 major currencies this year with a 35 percent gain against the dollar. The rand has gained 29 percent in 2009. All but four of 26 developing- nation currencies tracked by Bloomberg have strengthened against the greenback in 2009.

Brazil’s gross domestic product increased 1.9 percent in the second quarter from the previous three months, the biggest gain in four years, and Finance Minister Guido Mantega last week said the economy will expand as much as 5 percent next year. Developing nations are helping the world recover from its deepest recession since the 1930s, Meirelles said.

“The emerging economies in general are getting out of this crisis stronger and faster than mature economies,” Meirelles said. “All that said, in moments of recovery, there is always the risk of excess of euphoria and excesses of pricing of certain assets and I think everybody needs to be aware of it.”

‘Overvalued’ Real

The Brazilian real is among “the most overvalued currencies” in the world, Thomas Stolper, a currency strategist at Goldman Sachs Group Inc., said yesterday on a call with clients. Meirelles declined to comment on the currency, which was little changed at 1.7010 per dollar yesterday in New York, after earlier in the day touching a one-year high of 1.6978.

Mantega said Oct. 8 that policy makers were “aggressively” buying dollars, using intervention to help counter appreciation that may hurt the nation’s exports.

Policy makers have “done a monumental effort” to limit gains in the local currency, Reginaldo Galhardo, foreign exchange manager at Treviso Corretora de Cambio, said in an interview from Sao Paulo. “Now investors wonder if the central bank will use some other kind of weapon.”

Meirelles is “very conservative and is only doing his job of alerting the market and preventing volatility and bubbles. But I don’t believe we have a bubble now. With the investment grade, the Olympics and the soccer World Cup, Brazil’s growth is guaranteed and the country will have its golden years,” said Andre Ferreira, currency director at brokerage Nova Futura DTVM in an interview in Sao Paulo.

To contact the reporter on this story: Fabiola Moura in New York at fdemoura@bloomberg.net
Last Updated: October 16, 2009 08:36 EDT"