Brazilian Real Climbs on Speculation Rousseff Support Declining

Brazil’s real rallied the most among major currencies on speculation a poll expected to be published this weekend will show eroding support for President Dilma Rousseff’s re-election.

The real rose 0.5 percent to 2.2214 per U.S. dollar at the close of trading in Sao Paulo, the biggest gain among 16 major currencies tracked by Bloomberg. The currency was up 1 percent this week. Swap rates on contracts maturing in January 2017 declined 10 basis points, or 0.10 percentage point, to 12.16 percent and was down three basis points since April 25.

The currency gained as a statement on the website of Brazil’s Superior Electoral Court indicated that Sensus Data World Pesquisa e Consultoria S/C Ltda. may publish a poll on the general election tomorrow. Rousseff’s support fell in an April 20-25 survey pitting her against Aecio Neves and Eduardo Campos to 37 percent from 44 percent in February, according to an MDA poll commissioned by the National Transport Confederation.

“The real has gained every time a poll shows Rousseff’s popularity falling,” Reginaldo Siaca, currency manager at Advanced Corretora de Cambio in Sao Paulo, said in a telephone interview. “There are expectations for results that may show once more her popularity is falling.”

Rousseff said in an April 30 televised address that she had signed a decree to cut income taxes to raise take-home pay and raise cash payments by 10 percent under a welfare program.

The increase will cost an additional 2.7 billion reais in 2015, Social Development Minister Tereza Campello said today at an event in Brasilia.

‘More Costs’

“The announcement means more costs for the government when it should be saving,” Solange Srour, the chief economist at ARX Investimentos in Rio de Janeiro, said by phone. “That should have an impact on inflation in the future.”

The real has gained 6.3 percent this year, strengthening partly on speculation that a change in the administration governing Brazil will do more to support economic growth.

Standard & Poor’s cut Brazil’s credit rating one step to the lowest level of investment grade in March, saying sluggish economic growth and an expansionary fiscal policy are fueling an increase in the government’s debt.

To support the currency and limit import price increases under a program announced in December, the central bank sold $198.4 million of foreign-exchange swaps today.

Economists say consumer prices will increase 6.5 percent in 2014, according to the median of about 100 estimates in a central bank survey published April 28. That pace is the upper limit of the official target.

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