Brazil's Real Climbs on Speculation Meirelles to Replace Levy

  • Central Bank offered to auction up to $500 million in lines
  • Newspaper reported that Levy could leave in early 2016

Brazil’s real advanced the most among major currencies after a report that former central bank chief Henrique Meirelles is likely to replace Joaquim Levy as the country’s finance minister.

The real gained 1.4 percent to 3.7478 per dollar Tuesday in Sao Paulo, after losing as much as 0.6 percent. Swap rates on the contract maturing in January 2017, a gauge of expectations on Brazil’s interest-rate moves, rose 0.07 percentage point to 15.52 percent.

Meirelles has the support of former president Luiz Inacio Lula da Silva to take over Levy’s post and is already meeting party leaders to discuss economic policy, Valor Economico reported Tuesday, citing a person close to Meirelles it didn’t identify. Levy, who President Dilma Rousseff bought onto her team in January with the mandate of restoring investor confidence in the country, has struggled to find support for measures to curb government spending, a move he says is necessary to ward off further credit-rating downgrades.

“Maybe Meirelles will have more political support,” said Rogerio Freitas, a partner at Rio de Janeiro-based hedge fund Teorica Investimentos. “Apparently he already has Lula backing him, so he could have more power to implement the reforms that the economy needs.”

The real also gained after Brazil’s central bank offered to auction as much as $500 million in foreign-currency credit lines on Tuesday, marking the third time this month the bank has taken such a step. Policy makers in September resumed new sales of swap contracts and foreign-exchange credit lines to support the currency. A similar program was in place from August 2013 to March 2015 amid efforts to crack down on inflation.

The real has tumbled 29 percent this year, the most among major currencies.

Brazilian media have reported several times in recent months that Levy is on his way out, even as Rousseff says he has her full support. On Oct. 16, Veja magazine said the finance minister planned to quit that day.

In September, days after he told lawmakers the government wouldn’t be able to deliver a budget surplus before interest payments in 2016, concern he would leave sparked a selloff in the currency. Levy stayed on, but since then, Brazil has had its sovereign rating cut twice, totaling three downgrades in three months -- including one that cost the nation the investment grade Levy had sought to preserve.

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