Brazil’s Real Gains Ahead of Lower House Vote to Cap Spending

  • Bill is a cornerstone of Temer’s plan to rein in deficit
  • Real is the world’s best-performing currency this year

Brazil’s real gained on expectations the Lower House will approve a bill to cap spending, a key measure in President Michel Temer’s plan to trim a budget deficit and rebuild investor confidence.

The currency climbed 0.5 percent to 3.2059 per dollar as of 9:45 a.m. in Sao Paulo, extending a year-to-date rally that has made it the world’s best-performing currency.

Brazilian assets have led global gains in 2016 on speculation a change in government will help pull Latin America’s biggest economy from its worst recession in a century. The proposal to amend the Constitution to set limits on government spending for as long as 20 years is the cornerstone of Temer’s fiscal adjustment plan and must be approved by at least three-fifths of both chambers of Congress to win approval. The Lower House is set to vote on the bill Monday.

"The rest of markets are relatively calm so the impact” of the international scenario is limited, said Georgette Boele, an Amsterdam-based strategist at ABN Amro Bank NV.

ABN forecasts the real will give back some gains and end the year around 3.35 reais per dollar, mainly due to a Federal Reserve rate hike in December and the outlook for more increases in 2017.

Supreme Court Justice Luis Roberto Barroso will make a statement on the spending cap bill before the Lower House on Monday, O Globo newspaper reported without saying how it got the information. It follows a claim by opposition lawmakers that the bill infringes on the separation of government branches. On Sunday, Temer said at a dinner with allied lawmakers that any move to water down the measure can’t be accepted.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, rose 0.05 percentage point to 12.01 percent.

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