Brazil Real Surges After Government Setback in Impeachment Fight

  • Investors see Rousseff ouster as solution to politcal logjam
  • Lower house voted to create committee to evaluate impeachment

Brazil’s real rallied after the government suffered a setback in Congress that fueled speculation there may be more support to oust President Dilma Rousseff than previously expected.

The lower house, in a secret vote Tuesday night, created a committee to evaluate the request to oust Rousseff and recommend whether hearings against her should begin. It was seen as a defeat for the president, who has sought to win over enough lawmakers to stop the proceedings. While investors in the past have been split about whether impeachment would be positive for Brazil, many now say it may be the only way to resolve a months-long political stalemate that has prevented lawmakers from focusing on shoring up the budget and kickstarting economic growth.

"Investors are betting that impeachment is the best way now and any evidence that it is moving closer is positive," said Joao Paulo de Gracia Correa, a foreign-exchange director at SLW Corretora de Valores, in Curitiba, Brazil. "We need changes and sometimes it doesn’t matter much how painful they can be in the shorter term."

The real gained 0.8 percent to 3.7673 per dollar as of 10:13 a.m. in Sao Paulo. One-month implied volatility fell to 20.14 percent, still the highest among 16 major currencies tracked by Bloomberg.  

Supreme Court Justice Luiz Edson Fachin ruled shortly after the lower-house vote to suspend the creation of the committee for a week in a move that’s being perceived as more bad news for Rousseff. The longer it takes to decide whether to move ahead with impeachment, the greater chance there is she will lose even more support in Congress, Correa said.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, declined 0.02 percentage to 15.76 percent.

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