Brazil’s Real Tumbles to 12-Year Low as Rousseff Faces Protests

Brazil’s real slumped to a 12-year low as President Dilma Rousseff’s government faced protests over corruption and economic hardship, adding to political turmoil.

The real fell 2.5 percent to 3.2487 per dollar at the close of trade in Sao Paulo, the weakest level on a closing basis since April 2003. The local tender extended its drop and fell the most among 31 major currencies tracked by Bloomberg after a person close to the government’s economic team said Brazil isn’t planning to curb the depreciation.

Speculation that Rousseff is struggling to reduce deficits threatening the nation’s investment-grade credit rating pushed the real down 5.7 percent since March 6 in its second straight weekly slide. Unions began protests over pensions Friday, and more than a quarter of a million people have signed up on social media to participate in demonstrations Sunday.

“Persistent concern over the political and economic situation in Brazil should keep pressuring the currency,” Luciano Copi, a trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in an e-mailed note to clients.

The real weakened past 3 per dollar last week for the first time since 2004 as Rousseff faced a challenge from Senate leader Renan Calheiros over a plan to unwind payroll tax breaks.

Moody’s Investors Service cited a stalled economy and fiscal challenges when it put Brazil on negative outlook in September, six months after Standard & Poor’s cut the nation to one level above junk.

Approval Rating

Brazil’s currency will find equilibrium, and the central bank won’t attempt to slow its drop, according to the person close to the government’s economic team, who asked not to be identified because discussions aren’t public.

To support the real and limit import price increases, the central bank sold the equivalent of $97.5 million of currency swaps Friday as part of a plan to offer as much as $100 million a day until at least March 31. It rolled over contracts worth $350.3 million.

Rousseff asked for patience in a televised speech March 8 and said economic measures including higher energy prices as well as reduced labor and pension benefits will produce results by year-end and have a lasting impact on controlling cost-of-living increases.

Petrobras Probe

Also weighing on the currency are allegations that executives at the state-controlled oil company demanded bribes in exchange for work contracts, which have helped to push Rousseff’s approval rating to a record low.

“Given the political uncertainties, the Petrobras probe, protests and the inability to reach agreement on legislation, the fundamental positioning is already BRL negative,” Ipek Ozkardeskaya, a currency strategist at Swissquote Bank in Gland, Switzerland, said by e-mail.

Swap rates on the contract maturing in January 2016, a gauge of expectations for changes in borrowing costs, climbed 0.08 percentage point to 13.86 percent Friday, extending their increase this week to 0.35 percentage point.

To curb inflation, Brazil raised the benchmark lending rate last week by a half-percentage point for a third straight meeting, raising it to 12.75 percent, the highest since 2009.

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