Brazil Real Advances After Rousseff Backs Spending Cut Measures

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Brazil’s real posted the biggest gain in Latin America after President Dilma Rousseff said measures to shore up the budget need to be strong enough to boost growth.

Criticism of Finance Minister Joaquim Levy for pursuing tax increases and spending cuts is unfair, Rousseff said in an interview published by O Estado de S.Paulo newspaper Monday. Levy has vowed to improve Brazil’s fiscal accounts after the worst budget deficit on record. He has increased taxes and frozen 69.9 billion reais ($22.2 billion) of this year’s budget as the government seeks to preserve its investment-grade rating.

“It is important for the market to see Rousseff defending him,” Jefferson Rugik, a currency trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in an interview. “She’s being vocal in her attempts to seek confidence in her administration.”

The real gained 1 percent to 3.1124 per dollar in Sao Paulo, the biggest increase among seven major Latin American tenders. Swap rates on the contract maturing in January 2017, a gauge of expectations for changes in borrowing costs, declined 0.10 percentage point to 13.57 percent.

The currency gained even after a central bank survey released Monday showed analysts forecast gross domestic product will shrink 1.3 percent this year, which would be the worst performance since 1990. That compares with a previous projection for a decline of 1.27 percent.

Harmonious Relationship

Rousseff said in the interview that it is important for lawmakers to approve a bill that unwinds breaks on corporate-payroll taxes.

In April, she named Vice President Michel Temer, a member of the ruling alliance’s Brazilian Democratic Movement Party, or PMDB, to be her liaison on Congress and take over negotiations with lawmakers who object to cuts to social-welfare programs.

One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, remained the highest among 16 major currencies tracked by Bloomberg.

The central bank extended the maturity of 7,000 foreign-exchange swap contracts worth $342.3 million Monday, compared with 8,100 daily last month. The sale of swaps supporting the real was halted in March.

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