Brazil Real, Stocks Decline as Vote on Budget Bill Is Delayed

Updated on
  • Senate vote is postponed after failure to achieve a quorum
  • Delay implies lack of support for budget-cutting measures

Brazil’s stocks and currency declined as a delay in voting on a budget bill raised concern that it may take longer than expected to rein in the fiscal deficit.

The real weakened 1 percent to 3.2392 per dollar on Thursday in Sao Paulo after gaining as much as 0.2 percent, and the Ibovespa’s drop was led by companies that depend on domestic demand. The Senate ended a session last night without voting on a bill that frees up as much as 30 percent of the federal budget because there was no quorum.

Any delay in reducing the budget deficit would disappoint investors. Brazilian assets are among the world’s best performers this year on optimism that the team that replaced the administration of suspended President Dilma Rousseff will restore growth and bolster the country’s finances. While the government of Acting President Michel Temer has announced a series of measures aimed at promoting a recovery, it has yet to win approval for its plans from Congress.

"Investors are concerned after this lack of quorum to vote the budget bill, which highlights the government’s difficulties in getting support," said Camila Abdelmalack, the chief economist at CM Capital Markets in Sao Paulo. “If they are having a hard time getting simple measures approved, what will happen when they have to go through very necessary, but unpopular adjustments like the pension reform?"

The Ibovespa dropped 0.3 percent to 59,166.02 as 38 of its 59 stocks fell. Brewer Ambev SA was among the major contributors to the gauge’s decline after Morgan Stanley cut the company’s shares to the equivalent of hold from buy, citing valuation levels. BM&FBovespa SA, the operator of Brazil’s stock exchange, declined 2.2 percent after JPMorgan Chase & Co. recommended investors sell the shares.

Most emerging-market currencies gained as minutes from the Federal Reserve’s latest meeting showed officials were split last month on whether the job market would continue to strengthen and saw little risk of a market pickup in inflation.

Brazilian swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, rose 0.03 percentage point to 12.74 percent.