Emerging-Market Currencies May Become Volatile, Meirelles Says

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.

Brazil’s real is outperforming the world’s 16 major currencies this year with a 36 percent gain against the dollar, followed by the South African rand’s 28 percent rise. All but four of 26 developing-nation currencies tracked by Bloomberg have strengthened against the greenback in 2009.

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.

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.”

To contact the reporter on this story: Fabiola Moura in New York at fdemoura@bloomberg.net