Brazil Real Advances as Primary Surplus Almost Triple Forecast

Brazil’s real gained after the central government primary budget surplus was almost three times higher than economists had forecast, easing fiscal concern.

The currency climbed 0.2 percent to 2.2323 per dollar today in Sao Paulo, also rising as the U.S. Federal Reserve planned further stimulus reductions in “measured steps.” The real gained 1.8 percent this month. Swap rates on contracts maturing in January 2017 fell five basis points, or 0.05 percentage point, to 12.23 percent, and were down 24 basis points in April.

Brazil’s Treasury reported a central government primary budget surplus, excluding interest payments, of 3.2 billion reais in March, compared with a 3.1 billion real deficit in the prior month. The median forecast from economists surveyed by Bloomberg was 1.1 billion reais.

“The central government budget surprised on the upside,” Jose Francisco Goncalves, the chief economist at Banco Fator SA in Sao Paulo, said by phone. “While it’s still going to be difficult for the government to reach its primary surplus goal this year, there was a surplus of more than 3 billion reais, which is better than the deficit in February.”

Later in the day, Brazil published broader budget figures. The deficit for the central and regional governments as well as state-run companies, including interest payments, widened to 13 billion reais in March from 9.5 billion reais a month earlier, the central bank reported. The median forecast from analysts surveyed by Bloomberg was for a shortfall of 11.8 billion reais.

S&P Downgrade

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.

The central bank reported a net foreign currency inflow today of $1.3 billion this month through April 25, compared with $2.3 billion for the month of March.

To support the real and limit import price increases under a program announced in December, Brazil sold $198.5 million of foreign-exchange swaps today.

In the U.S., the Fed pared monthly asset buying to $45 billion, its fourth straight $10 billion cut, and said further reductions in “measured steps” are likely.

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