Brazil Real Climbs as Budget Gap Narrows From Widest Since 2009

Brazil’s real strengthened the most among major currencies as the government’s budget deficit narrowed in November from the widest level in four years.

The real appreciated 0.7 percent to 2.3383 per U.S. dollar at the close in Sao Paulo, extending its weekly rally to 2.1 percent. Swap rates on contracts maturing in January 2017 fell nine basis points, or 0.09 percentage point, to 12.31 percent and are down four basis point for the week.

The government budget deficit as a percentage of gross domestic product narrowed to 3 percent last month from 3.4 percent in October, which was the widest since 2009. Net debt to GDP fell in November to 33.9 percent, the lowest for the month since 1997 as the government took in one-time payments of back taxes and oil auction fees.

“November had an extraordinary result, making up for October’s very bad numbers,” Joao Paulo de Gracia Correa, a foreign-exchange manager at Correparti Corretora de Cambio, said in a telephone interview.

After the close of markets, the Finance Ministry said it will increase the financial transactions tax to 6.38 percent from 0.38 percent for payments made by debit cards abroad, withdrawal of foreign currency and the purchase of traveler checks. The levy will remain at 0.38 percent for the purchase of dollars in Brazil.

Swap rates declined as slower-than-forecast inflation added to speculation that the central bank will limit further increases in borrowing costs.

The Getulio Vargas Foundation reported today that wholesale, construction and consumer prices rose 0.60 percent in the month through Dec. 20, less than the 0.62 percent median forecast of economists surveyed by Bloomberg.

Target Rate

Brazil has lifted the target lending rate by 2.75 percentage points since April to 10 percent, the biggest increase among 49 central banks.

The real has lost 5.2 percent this quarter on concern that the country’s fiscal deterioration will lead to a reduced credit rating and on speculation that the tapering of Fed stimulus will sink demand for the nation’s assets.

The central bank said Dec. 18 it will extend its intervention announced in August to support the currency and limit import price increases. Brazil will auction $200 million of foreign-exchange swaps on trading days from January through at least the end of June, down from offerings of $500 million four days a week this year.

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