Brazilian Real Rises as Primary Budget Surplus Exceeds Forecast

Brazil’s real climbed for a third day as the government reported stronger budget figures than economists forecast.

The currency appreciated 0.6 percent to 2.2139 per U.S. dollar in Sao Paulo, paring its quarterly decline to 8.7 percent, the biggest after the Indian rupee among 24 emerging-market dollar counterparts. The central bank sold $3.3 billion in foreign-exchange swaps in its ninth day of intervention in three weeks to support the real. The real fell on June 20 to a four-year low of 2.2575.

“The primary surplus of the government was stronger than expected and that helped” the currency, Luiz Eduardo Portella, managing partner at Modal Asset Management, said in a telephone interview from Rio de Janeiro.

The government reported today that it posted a primary budget surplus, which excludes interest payments, of 6 billion reais in May, higher than the 3.8 billion reais median forecast of economists surveyed by Bloomberg.

The real climbed earlier today as Valor Economico reported that Finance Minister Guido Mantega may be replaced, spurring speculation that a new economic team will help jumpstart growth.

President Dilma Rousseff is considering replacing Mantega with central bank president Alexandre Tombini, Valor reported, without saying where it got the information. Thomas Traumann, a presidential spokesman, said in an interview that Rousseff trusts Mantega and will keep him. Henrique Meirelles may return to his former position as head of the monetary authority, according to Valor.

‘Market’ Man

“Meirelles is the man of the market, and foreign investors would see that positively,” said Joao Junior, a fixed-income trader at Icap in Sao Paulo.

The real rose yesterday as Rousseff called for a plebiscite on political reform after meeting with leaders of the protest group Passe Livre in response to two weeks of street protests demanding improved public services and criticizing corruption.

Swap rates dropped today as a rebounding real eased speculation that the central bank will sustain the pace of increases in borrowing costs to curb inflation. A two-month rout in the currency has boosted the price of imports.

The central bank raised its target lending rate by 50 basis points on May 29 to 8 percent, surprising 38 of 57 economists surveyed by Bloomberg, who had expected a second straight increase of 25 basis points.

Swap rates due in January 2016 fell 26 basis points, or 0.26 percentage point, to 10.56 percent today after tumbling 46 basis points yesterday, the most since March 2009. They pared their quarterly increase to 153 basis points.

Bond Buybacks

The government bought back 380 million reais of zero-coupon bonds yesterday in a fifth unscheduled offer since June 13 to support its securities amid a rout triggered on June 19, when Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank may curtail stimulus.

Yields on Brazil’s benchmark fixed-rate bonds due in 2023 fell 27 basis points to 11 percent today after reaching a one-year high of 11.63 percent on June 21.

“It seems markets had exaggerated their reaction to Bernanke,” said Mauricio Junqueira, who manages 700 million reais at Tese Gestao de Investimentos in Rio de Janeiro.

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