Brazil’s Real Drops From Three-Week High as Levy Face ObstaclesFilipe Pacheco
Brazil’s real fell from a three-week high on concern that Joaquim Levy will face obstacles in trying to revive Latin America’s largest economy as he takes over as finance minister.
The currency declined 1.2 percent to 2.5311 per dollar at the close in Sao Paulo, dropping for the first time in three days. The Ibovespa benchmark equity index lost 0.7 percent. Swap rates, a gauge of expectations for changes in borrowing costs, fell three basis points, or 0.03 percentage point, to 12.07 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 31 major currencies tracked by Bloomberg after the Russian ruble. The real extended losses today as Levy told journalists in Brasilia that the new cabinet had no immediate measures to reveal, saying it would be hasty to make announcements now.
“You can have a dream team in place, but the lack of growth undermines credibility to make necessary changes,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said in a telephone interview. “Volatility in the currency accurately reflects the mood of the markets.”
Levy, the head of asset management at Banco Bradesco SA, was appointed by President Dilma Rousseff to replace Finance Minister Guido Mantega as the nation struggled with a stalled economy and budget deficits.
Rousseff also named former Deputy Finance Minister Nelson Barbosa for the Planning and Budget Ministry while Alexandre Tombini will remain as president of the central bank. Rather than taking office immediately, the new appointees will work in a transition team.
Brazil’s benchmark dollar bonds maturing in 2025 increased 0.5 cent to 102.33 cents on the dollar while a gain in local fixed-rated notes due in 2023 pushed yields down six basis points to 11.90 percent.
The cost of insuring Brazilian bonds in the credit-default swaps market fell for an eighth straight day, dropping 1.5 basis points to 152 basis points. The stretch of decreases, reflecting eased risk, is the longest since September.
The real posted a weekly rally of 3.4 percent on Nov. 21, its biggest in a year, after news reports indicated that Levy was being considered as finance minister.
A University of Chicago-trained economist, Levy, 53, helped cut Brazil’s debt and pay back the International Monetary Fund when he was Treasury secretary from 2003 to 2006.
Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil SA, hailed Levy’s appointment as an indication of Rousseff’s willingness to undo policies that helped push business confidence to its lowest on record.
“If you look at Levy’s history, you can expect a radical move in the conduct of fiscal policy,” Rostagno said by phone from Sao Paulo. “The first impression is that Dilma’s government will in fact undergo a significant change, which is quite welcome, given that the country is flirting with the risk of losing its investment-grade status.”
Standard & Poor’s reduced Brazil’s credit rating in March to one level above junk, citing a slowdown in economic growth and a deterioration in fiscal accounts.
Brazil’s gross domestic product rose 0.2 percent in the third quarter from the three prior months after contracting in the first half of the year, according to the median forecast of economists surveyed by Bloomberg. The report from the national statistics agency is due tomorrow.
The Getulio Vargas Foundation said today that wholesale, construction and consumer prices climbed 0.98 percent in the 30 days ended last week, more than the 0.95 percent advance forecast by economists surveyed by Bloomberg.
The central bank under Tombini unexpectedly raised the target lending rate on Oct. 29 by a quarter-percentage point to 11.25 percent to slow inflation.
To support the currency, Brazil sold the equivalent of $197.8 million of foreign-exchange swaps today as part of an intervention program begun last year and rolled over contracts worth $684.8 million.