Brazil’s Real Drops on Concern Rousseff Faces Budget Opposition

Updated on

Brazil’s real declined for a third straight day amid concern President Dilma Rousseff will face opposition as lawmakers prepare to vote on fiscal measures.

The real depreciated 1.1 percent to 3.0381 per dollar in Sao Paulo, the weakest level since May 13.

The currency erased its gain in May as the lower house considered an increase in import taxes and a reduction of payroll tax breaks in an effort to shore up finances and avoid a junk credit rating. Finance Minister Joaquim Levy is seeking a primary surplus, which excludes interest payments, of 1.2 percent of gross domestic product this year after a 0.6 percent deficit in 2014.

“There is a lot of tension regarding politics,” Camila Abdelmalack, an economist at CM Capital Markets in Sao Paulo, said by telephone. “Traders are positioning themselves as nothing is a given at this point.”

Brazil will miss its goal of a 1.2 percent primary budget surplus even with austerity measures, Eurasia Group analysts including Joao Augusto de Castro Neves and Christopher Garman wrote in a research report.

The real extended losses along with most other emerging-market currencies after a U.S. surge in new residential construction added to speculation that the Federal Reserve will deem the world’s largest economy strong enough to withstand higher interest rates.

Swap rates on the contract maturing in January 2017, measuring expectations for changes in Brazil’s borrowing costs, declined 0.02 percentage point to 13.47 percent.

While Brazil halted at the end of March the sale of currency swaps supporting the real and limiting import price increases, the central bank is still doing rollovers, extending the maturity on contracts worth $394.2 million Tuesday.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE