Brazil’s real joined a selloff in global currencies against the dollar as newly appointed Finance Minister Henrique Meirelles refrained from giving details on how to tackle the nation’s ballooning fiscal deficit.
The real erased its gain for the week as the U.S. currency climbed after retail data re-ignited speculation the Federal Reserve may raise interest rates this year, dimming the outlook for emerging markets. Meirelles, who on Thursday took over as finance minister in Acting President Michel Temer’s new cabinet, said he would take tough measures to stop government spending from growing in nominal terms and to win back investor trust.
The Brazilian real has climbed the most among about 150 currencies worldwide this year after Russia’s ruble on bets that a new government would help pull Latin America’s largest economy out of its worst recession in a century and shore up the budget. Brazil’s fiscal deficit this year is probably higher than the 96 billion reais ($27.5 billion) targeted by the previous government, Meirelles said, adding that he is trying to get a hold of the situation inherited from President Dilma Rousseff. Concrete measures will only be announced after that, he said.
“While this is a bad day for currencies all over the globe, many investors had high expectations that something more concrete would be announced in Brazil,” said Reginaldo Galhardo, a foreign exchange manager at Treviso Corretora de Cambio in Sao Paulo. “It is natural that Meirelles will take sometime to work on eventual measures. Problems won’t be solved all of a sudden.”
The real dropped 1.4 percent to 3.5335 per dollar on Friday, trimming this year’s rally to 12 percent. The central bank refrained from selling reverse swaps intended at weakening the currency and preventing exports from being hampered.
Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, rose 0.01 percentage point to 13.58 percent.