Brazil’s Real Climbs to a Week High on Economic Team’s Prospects

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Brazil’s real rose to a week high on speculation President Dilma Rousseff’s new economic team will prevail in balancing the budget and restoring growth.

The real advanced 0.7 percent to 2.6829 per dollar at the end of trade in Sao Paulo, the strongest level since the end of 2014. Swap rates, a gauge of expectations for changes in borrowing costs, decreased 0.04 percentage point to 12.74 percent on the contract maturing in January 2016.

“The team is considered quite strong and well-regarded by the market,” Cristiano Oliveira, the chief economist at Banco Fibra SA in Sao Paulo, said in a telephone interview. “It will be important for it to show more commitment to fiscal changes than we have seen in previous years.”

Appointed by Rousseff to the economic team to revive growth during her second term, Finance Minister Joaquim Levy signaled Jan. 5 that he could increase tax revenue to help achieve a “necessary” budget rebalancing. Concern that Brazil’s fiscal deterioration would lead to a reduced credit rating helped push the real down 11 percent in 2014.

One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, was the highest among 16 major currencies tracked by Bloomberg after Norway’s krone.

Fiscal Accounts

The currency briefly erased its gains earlier today after Brazil posted a foreign-exchange outflow of $9.3 billion for last year.

“Investors have been very sensitive to any kind of news from Brazil in the past few days,” Reginaldo Siaca, a currency manager at Tov Corretora de Cambio in Sao Paulo, said in a telephone interview. “The outflow numbers were bad.”

Rousseff, who was sworn in Jan. 1, appointed Levy to her new economic team as the government struggles to revive growth. Deteriorating fiscal accounts and inflation hovering close to the ceiling of the target range add to the challenges he faces in seeking to avoid the loss of investment-grade status.

As treasurer under former President Luiz Inacio Lula da Silva, Levy helped pave the way for Brazil’s first investment-grade rating in 2008, reduce public debt and pay back the International Monetary Fund.

Brazil’s central bank sold the equivalent of $98 million of currency swaps today as part of an effort to support the real and limit import price increases and rolled over contracts worth $489.7 million. It plans to offer as much as $100 million a day in swaps until at least March 31, compared with $200 million a day last year.

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