The real led major currency advances as Brazilian business leaders affirmed support for Finance Minister Joaquim Levy in his effort to reduce budget deficits and preserve the nation’s credit rating.
Brazil is moving in the right direction with Levy in the finance post, Itau Unibanco Holding SA board member Fabio Barbosa said Tuesday during an event at Bloomberg’s office in Sao Paulo. The vote of confidence from the private sector comes at a critical time as President Dilma Rousseff considers vetoing a measure to increase pension benefits while a reversal of tax breaks for some industries awaits a vote in the lower house.
“Levy has been taking the heat from politicians, and it is good that support for him comes from the market,” Reginaldo Siaca, a foreign-exchange manager at TOV Corretora de Cambio in Sao Paulo, said in a telephone interview.
The real appreciated for the first time in three days, climbing 1.2 percent to 3.0889 per U.S. dollar at the close of trade in Sao Paulo. The gain was the biggest among 16 major tenders tracked by Bloomberg.
Brazil is going through a “rich moment” that will redefine the growth cycle for the future, Quest Investimentos founder Luiz Carlos Mendonca de Barros said at the Bloomberg event. Levy is doing what needs to be done, he said.
Moody’s Investors Service, which rates the South American nation at the second-lowest level of investment grade, cited a stalled economy and fiscal challenges when it put Brazil on negative outlook in September.
The local currency rose even after a report indicated that retail sales unexpectedly fell 0.4 percent in April as the prospect of recession undermined confidence in the economy. The median forecast was for an increase of 0.7 percent.
Brazil is the only member of the Group of 20 nations raising borrowing costs this year, contributing to the lag in growth. Yet inflation remains above the official target after the central bank lifted the benchmark lending rate for a sixth straight time on June 3, increasing it to 13.75 percent.
Swap rates, a gauge of expectations for Brazil’s borrowing costs, decreased 0.10 percentage point to 13.96 percent on the contract maturing in January 2017 after rising Monday to the highest level since December 2008.
Brazil extended the maturity Tuesday on 6,300 foreign-exchange swap contracts worth $309.1 million, compared with 8,100 daily last month.
The central bank monitors hedge demand and not the exchange rate when preparing swap offerings, a member of Rousseff’s economic team said last week. Policy makers consider risks to financial stability, according to the official, who asked not to be identified because the discussions aren’t public.