Brazilian Currency Slides as Rousseff Faces Political Challenge

Brazil’s real fell to a one-week low as President Dilma Rousseff’s plan to cut budget deficits and avoid a credit downgrade faced a challenge in Congress.

The currency slipped for a third straight day as Folha de S.Paulo reported over the weekend that Eduardo Cunha, the head of the lower house, pledged to block a bill that would bolster revenue by allowing Brazilians to repatriate funds without facing charges of tax evasion. A reduction in the nation’s sovereign rating by Moody’s Investors Service is more likely if Brazil doesn’t make economic changes, Finance Minister Joaquim Levy said in an interview with Folha conducted last week.

“If the head of Congress doesn’t retreat quickly, consequences for the country will be disastrous,” Ricardo Gomes da Silva, a currency trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in an e-mailed note to clients.

The real slid 0.2 percent to 3.1960 per dollar at the close of trading in Sao Paulo, the weakest level since July 9.

Cunha urged his party, the biggest in the country, to abandon the ruling coalition and identified himself as a member of the opposition last week. Cunha made his announcement at a press conference following allegations he received kickbacks in exchange for a contract with the state-controlled oil company. He denied wrongdoing.

Temer’s View

Brazil Vice President Michel Temer told reporters in New York on Monday that Cunha’s attempt to distance himself from the government is personal in nature.

Swap rates, a gauge of projected changes in Brazil’s borrowing costs, fell to a seven-week low as analysts surveyed by the central bank lowered their median forecast for inflation in 2016 for a third straight week. They projected consumer prices will rise 5.40 percent, down from the prior outlook of 5.44 percent, and predicted gross domestic product growth of 0.33 percent, which would be a smaller recovery from this year’s contraction than previously expected.

Latin America’s biggest economy is heading toward its worst recession in 25 years as consumer and business confidence languish. The government is boosting taxes as the central bank raises borrowing costs, bucking the trend of its Group of 20 peers in order to slow inflation.

Swap rates decreased 0.12 percentage point to 13.33 percent on the contract maturing in January 2017, the lowest level since May 29. Brazil extended the maturity on 6,000 currency swap contracts Monday. Earlier this month, it lowered the total amount offered in a rollover from 7,100.

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