Brazil Real Rallies to Five-Month High as Rousseff Support Ebbs

Brazil’s real rose to a five-month high as President Dilma Rousseff’s decline in another poll added to speculation that she will struggle to win re-election after consecutive years of stalling economic growth.

The real climbed 0.8 percent to 2.2189 per dollar today in Sao Paulo, the strongest closing level since Oct. 30. The gain was the biggest among 16 major currencies tracked by Bloomberg. The Ibovespa benchmark stock index increased 2.1 percent.

The currency rose as Rousseff’s support fell to 38 percent this month from 44 percent in February in a Datafolha poll that pitted her against opposition candidates Aecio Neves and Eduardo Campos. The currency surged 1.9 percent on March 27, when a survey conducted by CNI-Ibope showed Rousseff’s approval rating dropped for the first time since since July, when street protests pushed her popularity to a record low.

“Investors think that if Dilma leaves office, it will be better for the markets,” Joao Medeiros, director at Pioneer Corretora de Cambio in Sao Paulo, said by phone. “When polls keep showing her numbers falling, the real tends to advance.”

Forty-two percent of those surveyed in the CNI-Ibope survey said Rousseff’s government was worse than that of her predecessor, Luiz Inacio Lula da Silva. While her support declined in the Datafolha poll, Rousseff still had more than the level of backing a candidate would need to win the first round of voting this year. The April 2-3 survey of 2,637 people had a margin of error of plus or minus 2 percentage points.

S&P Rating

Standard & Poor’s lowered the nation’s credit rating to the lowest level of investment grade on March 24, saying sluggish economic growth and an expansionary fiscal policy are increasing the country’s debt.

Swap rates on contracts maturing in January 2017 fell five basis points, or 0.05 percentage point, to 12.30 percent on slower-than-forecast inflation. The Getulio Vargas Foundation said producer, construction and consumer prices rose 1.48 percent in March from a month earlier, compared with the 1.59 percent median estimate of economists surveyed by Bloomberg.

In raising the target lending rate by 0.25 percentage point to 11 percent last week, policy makers removed language that had appeared in their previous statement about continuing to increase borrowing costs.

Inflation “came in below expectations, and the swap rates are reflecting that,” Flavio Serrano, an economist at Banco Espirito Santo de Investimento in Sao Paulo, said by phone.

About 100 economists in a weekly central bank survey published today cut their median growth outlook for this year to 1.63 percent from the prior 1.69 percent.

To bolster the real and limit import-price increases, Brazil sold $198.3 million of foreign-exchange swaps today under a program announced in December. The central bank resumed auctions last week to extend maturities on swap contracts, rolling over $493 million today.

To contact the reporters on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net; Filipe Pacheco in Sao Paulo at fpacheco4@bloomberg.net

To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Dennis Fitzgerald, Richard Richtmyer

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