Brazil Real Advances as Impeachment Speculation Increases

  • Executives allege company made illegal 2010 campaign donations
  • Central bank expected to leave Selic rate unchanged Wednesday

Brazil’s real gained amid speculation that support to impeach President Dilma Rousseff is growing.

The real rose 1 percent to 3.8941 per dollar in Sao Paulo after Folha de S. Paulo newspaper reported that executives at Andrade Gutierrez said in a plea bargain deal that the construction firm allegedly gave illegal contributions to Rousseff’s election campaign in 2010.

The accusations could be damaging for Rousseff as a corruption probe that has rattled business and political leaders extends into its third year. Some traders see an impeachment as the only way to resolve a months-long political stalemate that has prevented lawmakers from cutting the budget deficit and cost Latin America’s largest economy its investment-grade status.

"Traders interpret any negative news for the government as bringing closer the possibility of impeachment," said Camila Abdelmalack, an economist at CM Capital Markets in Sao Paulo.

Rousseff’s mandate is safe, her lawyer Flavio Caetano told Bloomberg in a telephone interview. 

“There’s no legal chance of annulling a mandate in the case of proving irregularities in previous campaigns,” Caetano said. He didn’t comment on issues related to the 2010 campaign. Andrade Gutierrez declined to comment.

"The market is asking for change and it doesn’t matter whether it is with or without Rousseff, as long as things move along," said Arnaud Masset, an analyst at Swissquote Bank SA in Gland, Switzerland.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, rose 0.035 percentage point to 14.06 percent.

Most analysts surveyed by Bloomberg agree the central bank will keep rates unchanged Wednesday for the fifth straight meeting. It unexpectedly voted to maintain rates at its last meeting on Jan. 20 despite having signaled an increase. The bank will announce its decision in Brasilia after 6 p.m. local time.

The outlook for Brazil’s economy worsened as analysts in a central bank survey published Monday said the nation is headed for a deeper recession. Economists in the survey expect gross domestic product to shrink 3.45 percent in 2016 and inflation to end the year at 7.57 percent.

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