Brazil’s Real Declines as Rousseff Mulls Economic Appointments

Brazil’s real fell for the first time in three days as President Dilma Rousseff considered the composition of her economic team after winning re-election by the narrowest margin since at least 1945.

The currency declined 0.2 percent to 2.5563 per dollar at the close of trade in Sao Paulo. Swap rates, a gauge of expectations for changes in Brazil’s borrowing costs, climbed 10 basis points, or 0.10 percentage point, to 12.71 percent on the contract maturing in January 2017.

One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, remained the highest among 16 major currencies tracked by Bloomberg. Rousseff is preparing to nominate a finance minister who will face the challenge of reviving economic growth, slowing above-target inflation and stemming deficits threatening the country’s investment-grade status.

“Expectations remain high among investors for Rousseff’s economic policies, with lots of speculation of what might come, which brings volatility to the real,” Carlos Alberto Abdalla, a foreign-exchange director at Renova Corretora de Cambio in Sao Paulo, said in a telephone interview.

Former central bank chief Henrique Meirelles and former deputy finance minister Nelson Barbosa are the front-runners as Rousseff decides on a finance minister, according to three people familiar with the discussions.

Chances have increased that Rousseff will choose Meirelles because she is aware that he would help boost investor confidence, according to one of the people, who asked not to be identified because the discussions were private. Meirelles was central bank chief from 2003 to 2010 under then President Luiz Inacio Lula da Silva.

Mantega Replacement

Rousseff plans to decide after the G-20 summit this weekend on a replacement for Finance Minister Guido Mantega, who won’t be returning for her second term.

Standard & Poor’s lowered Brazil’s credit rating in March for the first time in more than a decade to the lowest level of investment grade, citing slower economic growth as well as deteriorating fiscal accounts.

Banco Santander Brasil SA economist Mauricio Molan cut his forecast for the nation’s growth in 2015 to 0.3 percent from 0.9 percent, saying higher borrowing costs are forecast.

Policy makers unexpectedly raised the target lending rate on Oct. 29 by a quarter-percentage point to 11.25 percent to curb above-target inflation. The decision came three days after Rousseff defeated opposition candidate Aecio Neves.

To support the currency, Brazil sold the equivalent of $197.6 million of foreign-exchange swaps as part of an intervention begun last year and rolled over contracts worth $439.5 million.

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