Brazil Real Leads Gains as Levy’s Fiscal Measures Clear a Hurdle

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Brazil’s real led global advances as a vote by lawmakers supported Finance Minister Joaquim Levy in his effort to reduce budget deficits and preserve the nation’s investment-grade status.

The currency gained 1.2 percent to 3.0026 per U.S. dollar in Sao Paulo, the best performance among 31 major currencies tracked by Bloomberg.

The real rose for the first time in four days as the lower house approved the basic text of legislation to increase taxes on imports, clearing a hurdle to passage of Levy’s broad package of fiscal measures. Legislators are also considering limits on social security benefits.

“Victories for Levy in Congress help the real,” Deives Ribeiro, a foreign-exchange manager at Fair Corretora de Cambio in Sao Paulo, said by phone.

The lower house delayed until the week of June 10 a vote to raise corporate payroll taxes, the bill’s sponsor, Leonardo Picciani, said Wednesday.

Brazil’s planned budget freeze of as much as 80 billion reais ($26.4 billion) and spending cuts in Congress are insufficient to meet this year’s fiscal target, according to a government official with direct knowledge of discussions.

The administration of President Dilma Rousseff will have to increase taxes and seek extraordinary revenue to meet the 2015 budget surplus target of 1.2 percent of gross domestic product when interest payments are excluded, said the official, who asked not to be identified because the talks aren’t public.

In the U.S., minutes of the Federal Reserve’s April meeting published Wednesday indicated that officials didn’t expect to raise interest rates at their next meeting in June even as they concluded that a first-quarter economic slowdown was unlikely to persist.

Swap rates, a gauge of expectations for Brazil’s borrowing costs, declined 0.13 percentage point to 13.34 percent on the contract maturing in January 2017.

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 $395.3 million Wednesday.

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