Brazilian Real Trims Monthly Decline Amid Budget Speculation

  • Temer said to give Meirelles more power over budget planning
  • Central bank refrains from intervening to weaken currency

Brazil’s real advanced on speculation that Finance Minister Henrique Meirelles will have more power over budget planning as the government seeks to control spending and restore confidence in Latin America’s largest economy.

The real trimmed its monthly decline after a government aide who asked not to be named said that the office responsible for budget planning will be incorporated into the Finance Ministry in August. The currency also joined gains in its developing-nation peers after data showing the U.S. economy grew slower than forecast gave policy makers no reason to accelerate their plans for raising rates. The Brazilian central bank refrained from selling reverse swaps to weaken the real.

Brazilian assets have led world gains in 2016 on speculation that the new administration would be able to pull the economy out of its worst recession in a century and shore up the budget. Acting President Michel Temer isn’t happy with the way the budget is currently managed within the government structure, according to the aide who asked not to be named because the plans aren’t public. He aims to have offices responsible for tax collecting, budget planning and spending all under same ministry.

“Meirelles is the strongest name in the economic team and very well respected by the market, so any sign he is gaining power is positive for Brazilian markets,” said Jefferson Rugik, a currency trader at Correparti Corretora de Cambio.

While Temer has yet to push through any major policy proposals, he’s impressed investors by assembling what Goldman Sachs Group Inc. has called an economic dream team, which includes Meirelles and Ilan Goldfajn, head of the central bank. Temer, who replaced Dilma Rousseff while she faces an impeachment trial, has also improved relations with Congress, fueling hopes he can pass legislation to repair Brazil’s finances. Putting the public debt back on a sustainable path is a crucial step to avoid further credit-rating cuts.

The real also rose after the central bank refrained from its intervention to limit gains. Concern that the currency’s rally would hamper exports has led the monetary authority to sell $52.3 billion of reverse swaps, which are equivalent to buying dollars in the futures market.

The real climbed 1.3 percent to 3.2489 per dollar on Friday, trimming this month’s decline to 1.1 percent. Swap rates on the contract maturing in January 2018, a gauge of expectations for interest rates, fell 0.08 percentage point to 12.83 percent.

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