Brazil's Real Advances Ahead of Revised Fiscal Target Vote

  • If measure not approved, president risks breaching fiscal law
  • In separate vote, committee set to rule on Cunha allegations

Brazil’s real rose ahead of a planned congressional vote on the country’s fiscal target, which is key to avoiding a forced government spending shutdown.

The government is working to gather support among lawmakers to get approval to change this year’s fiscal target, allowing it to end the year with a primary deficit of 119 billion reais ($31 billion). The vote could happen as early as Wednesday. If the change isn’t approved, President Dilma Rousseff faces a tough choice: either breach budget laws, which could be grounds for a new impeachment request, or freeze spending. Planning Minister Nelson Barbosa said a failure to pass the measure would paralyze the government, newspaper Folha de S. Paulo reported.

The real advanced 0.4 percent to 3.8373 per dollar in Sao Paulo, after declining as much as 0.6 percent. The currency is down 31 percent this year on concern the government will fail to ward off credit-rating cuts as the country is stuck in the middle of its longest recession since the 1930s. One-month implied volatility was 21.3 percent, the highest among 16 major tenders tracked by Bloomberg.

"I believe the government will be able to get the necessary support for the approval of the new target this time, which should support the real in the very short term. But that doesn’t mean most problems are solved," said Reginaldo Galhardo, a foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo. "There is a lot more to be done, and the political scenario remains bleak."

Separately, the ethics committee in the lower house of Congress is also scheduled to vote on whether to open an investigation into lower house head Eduardo Cunha’s alleged role in the Carwash corruption probe.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, dropped 0.08 percentage point to 15.66 percent.

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