Brazil’s Real Gains Amid Optimism Over Temer’s Economic Measures

  • Temer’s economic team pushing for at least $6 bln in new cuts
  • Currency reversed earlier declines with positive expectations

Brazil’s real rose for a second day amid speculation that Acting President Michel Temer’s government will be able to pull Latin America’s largest economy from its deepest recession in a century.

The real added 0.1 percent to 3.2498 per dollar on Tuesday after Temer met his economic team to discuss policies designed to revive economic growth without increasing government expenses. It declined as much as 1 percent earlier amid a slide in emerging-market currencies and an intervention by the Brazilian central bank. The monetary authority sold all 10,000 reverse currency swaps offered, equivalent to buying $500 million in the futures market, to limit gains in the real.

Brazilian assets surged this year amid optimism that Temer will trim a budget deficit, end credit-rating downgrades and restore confidence. His economic team was said to present stimulus measures to the head of the nation in two weeks, according to a source that participated in a cabinet meeting this afternoon and asked not to be named as the discussions are not public.

"There are strong expectations that the measures to be announced will be very positive, and this has overshadowed the external downward pressure in the real," said Cleber Alessie, a currency trader at H.Commcor DTVM in Sao Paulo.

Temer’s economic team is pushing for an additional budget freeze of at least 20 billion reais ($6.2 billion) this year as part of an effort to rein in a growing deficit, according to a government official who was briefed on the matter. The cuts could be announced as early as this week to ensure that the current administration meets the goal of posting a 2016 deficit before interest payments of 170.5 billion reais, said the official, who asked not to be identified because the information isn’t public.

A gauge of developing-nation currencies dropped as the International Monetary Fund scrapped its forecast for a pickup in global growth this year.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest rates, were unchanged at 12.67 percent.

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