Brazil Real Gains as Economic Forecast Outweighs Political Woes

  • Several parties signal their opposition to economic measures
  • Central bank refrains from intervention to weaken currency

Brazil’s real advanced as economists said they expect a shallower downturn of the country’s economy than previously forecast, outweighing opposition in Congress to the government’s attempt to approve measures to trim the budget deficit.

The real gained 1.2 percent to 3.5698 per dollar Monday in Sao Paulo after earlier weakening 0.1 percent. Liquidity was reduced due to holidays in the U.S. and Europe. The central bank on Monday refrained from intervening to weaken the currency.

Economists now forecast the economy will shrink 3.81 percent this year, versus 3.83 percent previously. They also raised their growth outlook for next year from 0.55 percent to 0.5 percent. On the political front, leaders of seven of the major parties in Congress, which control more than half of Lower House and Senate, are signaling resistance to proposals made by acting President Michel Temer, especially a cap on government spending and changes to social security, according to a report in O Estado de S. Paulo.

"While there is some optimism related to the economy in the mid-term, there still are concerns regarding the political front," said Reginaldo Galhardo, a foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo.

Brazil’s central government posted a higher-than-expected primary fiscal surplus for April, the National Treasury reported on Monday. The surplus before interest payments, which excludes results of states, municipalities and state-owned companies, reached 9.8 billion reais ($2.7 billion) in April. The result followed a gap of 7.9 billion reais in March, and was more than four times bigger than the 2.4 billion-real surplus for April estimated by economists surveyed by Bloomberg.

Stocks and the real are among the world’s top performers this year on speculation that the impeachment of President Dilma Rousseff will usher in a government better able to break the political paralysis that has prevented the approval of measures to support growth and shore up the budget.

Brazil Finance Minister Henrique Meirelles said on Monday that there are signs of a recovery in confidence indicators. Growth in Latin America’s biggest economy should resume in coming quarters, he said at an event in Sao Paulo.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, declined 0.18 percentage point to 12.81 percent.

Before it's here, it's on the Bloomberg Terminal.