Brazil’s real declined for a fourth straight day on concern the government isn’t doing enough to curb its budget deficit.
The currency depreciated 0.2 percent to 2.3362 per U.S. dollar at 10:15 a.m. in Sao Paulo, the weakest level on a closing basis since Sept. 4. Swap rates on contracts maturing in January 2019 climbed two basis points, or 0.02 percentage point, to 12.53 percent on speculation a wider fiscsal shortfall will drive up borrowing costs.
“The real’s performance is bad due to internal imbalances such as the deficit,” Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil in Sao Paulo, said in a telephone interview. “It’s possible for Brazil to have a more prolonged monetary tightening since we don’t see an improvement in the fiscal policy next year.”
The real has fallen 4.3 percent since Oct. 31, when the government reported that the budget deficit as a percentage of gross domestic product was the largest in almost four years. The drop in the currency is the biggest among major dollar counterparts tracked by Bloomberg.
A person on the government’s economic team who asked not to be identified because discussions aren’t public said the federal government is working to pass a bill this year that would exempt it from having to compensate when states and cities miss primary fiscal surplus targets, which exclude interest payments. The Finance Ministry’s press office declined to comment.
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