Rio De Janeiro/BLOOMBERG
The Brazilian real became more volatile as the government tries to push Congress to pass a proposed tax increases to avoid other levies that could further weigh on economic growth.
One-week implied volatility surged 0.6 percentage point to 19.24 percent, the second-highest among the world’s 16 most- traded currencies. The real slumped 0.2 percent to 4.0059 per dollar in Sao Paulo.
President Dilma Rousseff threatened to seek other tax increases should Congress fail to approve a levy on financial transactions, O Globo reported. She said spending cuts have reached their limit and without the financial tax, the government would be forced to boost revenue by boosting existing levies.
“Rousseff’s threats add to political tension that could keep sidetracking her economic agenda,” said Joao Paulo de Gracia Correa, a foreign-exchange director at SLW Corretora de Valores in Curitiba, Brazil. “It is quite a challenge to support the economy and at the same time deal with the fiscal situation, and we see volatility increasing.”
With retail sales falling more than forecast in December as a two-year recession erodes Brazilians’ purchasing power, tax hikes could further dent buyers’ appetites, he said.