Friday, 20 March 2015 01:44
SAO PAULO: The Brazilian real fell to its weakest level in nearly 12 years on Thursday as political wrangling heightened investor concern over the outlook for fiscal reform in Latin America’s largest economy.
Most other currencies in the region weakened as well, with investors snapping up dollars after a broad decline in the US currency following Wednesday’s Federal Reserve policy statement.
Brazil’s President Dilma Rousseff rebuffed questions about a cabinet reshuffle on Thursday, a day after her education minister resigned following a heated argument with lawmakers, highlighting the president’s fragile congressional coalition.
“The political cost of making the (fiscal) adjustment keeps getting higher and the market doesn’t like it,” said Jaime Ferreira, head of currency trading at Intercam in Sao Paulo.
Failure to pass key spending cuts and tax increases could lead to a sovereign credit rating downgrade and a major outflow of portfolio investments.
Brazil’s government has signaled that it is comfortable with the sharp depreciation of the real, which weakened over 19 percent against the dollar this year.
“We have had a big correction in the exchange rate, which helps our competitiveness,” Rousseff’s chief of staff, Aloizio Mercadante, said on Thursday.
Yields on Brazilian interest rate futures rose as the weaker currency raised the outlook for inflation.
Equity markets were broadly lower as investors took profits following a strong rally in the previous session. Wednesday’s gains were sparked by signals from the Fed that it would wait longer to raise interest rates than many investors had expected.
Brazil’s Bovespa stock index fell about 1 percent, with losses concentrated in the shares that rose most sharply on Wednesday, including lender Itau Unibanco Holding SA and state-run oil producer Petroleo Brasileiro SA, known as Petrobras.
Copyright Reuters, 2015
