Brazil Real Surges on Speculation Support for Rousseff Eroding

Brazil’s real rose the most in emerging markets on speculation an MDA poll commissioned by the National Transport Confederation due tomorrow will show reduced support for President Dilma Rousseff.

The real climbed 0.9 percent to 2.2235 per U.S. dollar today in Sao Paulo, the biggest increase among 24 developing-nation currencies tracked by Bloomberg. Swap rates on contracts due in January 2020 increased five basis points, or 0.05 percentage point, to 12.50 percent.

“The real is extending its gain on rumors that a poll will show Dilma’s voting support dropping once more,” Joao Paulo De Gracia Correa, a foreign-exchange trader at Correparti Corretora de Cambio, said in a telephone interview from Curitiba, Brazil.

Rousseff’s personal approval rating dropped to 55 percent in February from 58.8 percent in November, according to an earlier National Transport Confederation poll. Standard & Poor’s cut Brazil’s credit rating one step to the lowest level of investment grade last month, saying sluggish economic growth and an expansionary fiscal policy are fueling an increase in the government’s debt.

Brazil’s longer-term swap rates climbed today as Finance Minister Guido Mantega revived speculation that the central bank will keep raising borrowing costs to curb inflation when he ruled out more tax cuts on consumer goods.

Inflation Outlook

Economists lowered their 2014 outlook for consumer price increases to 6.5 percent, the upper limit of the central bank’s official target range, according to the median of about 100 estimates in a central bank survey published today.

To contain inflation, policy makers have raised the target lending rate from a record low 7.25 percent in April 2013 to a two-year high of 11 percent.

Brazil sold $198.2 million of foreign-exchange swaps today to support the real and limit import price increases. The tender has gained 5.7 percent this year, the most among emerging-market currencies tracked by Bloomberg.

While Bank of America Corp. analysts wrote in a research report to clients that the real appears overvalued after its recent performance, they added that “high implied yields prevent us from recommending short real positions.”

Economists surveyed by the central bank forecast for a fourth straight week that the real will weaken to 2.45 per dollar by the end of the year. A short is a bet that an asset may decline in value.

Mantega projected gross domestic product growth of 2.3 percent to 2.5 percent in 2014 and said the economy will expand more than 3 percent if restrictions on credit growth are removed. The economists surveyed by the central bank forecast that GDP will expand 1.65 percent in 2014, compared with an increase of 2.28 percent last year.

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