Brazil Real Rises as Mantega Says Government Beats Fiscal Target

Brazil’s real climbed for the first time in four days as Finance Minister Guido Mantega said the central government beat its primary surplus target in 2013, easing concern that the nation’s credit rating will be reduced.

The currency rose 0.5 percent to 2.3765 per U.S. dollar at the close in Sao Paulo, paring its decline this week to 1.6 percent, still the worst performance among 16 major counterparts. Swap rates on contracts due in January 2016 fell one basis point, or 0.01 percentage point, to 11.65 percent, extending the drop since Dec. 27 to five basis points.

Mantega told reporters in Brasilia today that the central government posted a primary surplus, which excludes interest payments, of 75 billion reais, or about 1.5 percent of gross domestic product. The government beat its target of 73 billion reais after of a December increase in tax collection.

“The market is cautious, but there seems to be a truce today,” Jose Carlos Amado, a currency trader at Renascenca DTVM in Sao Paulo, said in a phone interview.

The real fell 13 percent in 2013 on concern fiscal deterioration will lead to a lower credit rating and amid speculation that the tapering of Federal Reserve stimulus will sink demand for the nation’s assets. The drop in the currency is the biggest since the financial crisis in 2008.

Moody’s Investors Service and Standard & Poor’s cited deteriorating finances when they cut their outlooks on the nation’s credit grade last year. Brazil is rated two levels above junk at BBB by S&P and an equivalent Baa2 by Moody’s.

The government budget deficit as a percentage of gross domestic product narrowed to 3 percent in November from 3.4 percent in the prior month, which was the widest since 2009.

‘Fiscal Effort’

“We will continue with the fiscal effort to control expenses,” Mantega said today. “We will have a good fiscal result in 2014.”

The real dropped yesterday to an intraday level weaker than 2.4 per dollar for the first time in four months as the central bank scaled back support for the currency.

Brazil sold $199 million of foreign-exchange swaps today under a program announced Dec. 18 to auction $200 million each trading day until at least June 30 to support the currency and limit import price increases. The central bank offered $2 billion of swaps and $1 billion in dollar credit lines weekly in 2013 after the real touched a four-year low.

The government won’t charge a financial-transactions tax on the purchase of foreign currencies, Mantega said a week after the government raised the levy on traveler’s checks and cash withdrawals abroad. The foreign-exchange rate has little impact on inflation, he said today.

Consumer prices increased 5.85 percent in the year through mid-December, more than a percentage point above the 4.5 percent target, the government reported last month.

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

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