Brazilian Currency Leads Global Advances as Levy Signals Urgency

Brazil’s real led global gains on speculation Finance Minister Joaquim Levy is committed to improving fiscal accounts after the government posted a deficit that was twice as big as forecast.

The local currency climbed 1 percent to 3.1967 per dollar at the close of trade in Sao Paulo, the biggest increase among 31 major currencies tracked by Bloomberg. The real pared its quarterly decline to 17 percent.

The real rose Tuesday after Levy said at a Senate hearing that Brazil must act quickly to keep its investment-grade status. The government reported a February budget deficit of 58.6 billion reais ($18.3 billion), more than double the shortfall forecast by economists surveyed by Bloomberg, as interest payments rose to the most ever for a single month.

“Things have to be done now to avoid more problems in the future, and Levy is making that point clear,” Joao Medeiros, director of currency brokerage Pioneer Corretora de Cambio in Sao Paulo, said in a telephone interview. “He is very sincere in what he says, and markets like to see that.”

The currency advanced earlier amid speculation that private banks were supporting the real in a bid to shore up their financial accounts before reporting first-quarter figures.

Currency Volatility

One-week implied volatility on options for the real, reflecting projected shifts in the exchange rate, was the biggest among 16 major currencies.

Brazil’s real is the biggest laggard this quarter among major currencies on concern stalled growth and budget deficits will lead to a junk credit rating.

“Disappointment with the fiscal situation will keep coming and weighing on confidence,” Jessica Strasburg, an economist at CM Capital Markets in Sao Paulo, said in a telephone interview.

As part of an effort to support the real and limit import price increases, the central bank sold the equivalent of $98.2 million of currency swaps Tuesday. While the auctions will halt at the end of the month, the rollover of contracts will continue.

Swap rates on the contract maturing in January 2017, a gauge of expectations for changes in Brazil’s borrowing costs, declined 0.08 percentage point to 13.39 percent, paring their increase this quarter to 0.49 percentage point.

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