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Brazil's real hits record low as markets price govt By Reuters


NEW YORK/LONDON (Reuters) – Brazil's real fell by the most in more than two years to a new low on Wednesday and stocks were also under pressure as financial markets weighed on Brazil's government spending plans and a widening budget deficit. to test.

The local currency hit an all-time low of 6.3139 to the dollar before closing down 2.9% at 6.2896. This was the biggest daily decline since November 2022. The currency closed earlier to trade locally at 6.26, down 2.7%.

Adding more weight to the very end of the session, the US Federal Reserve cut interest rates on Wednesday and signaled that it will slow the pace at which borrowing costs fall, strengthening the dollar broadly.

The benchmark stock index closed at a six-month low, down 3.15% in the biggest daily percentage drop since November 2022.

The cost of insuring the country's bond debt was at a 14-month high, with investors worried as Latin America's largest economy faces a deepening financial market crisis.

Investors have been skeptical that lawmakers will be able to pass the main part of a fiscal bill aimed at putting the government's finances on a more stable footing.

“The markets are mostly concerned about the overall weak fiscal path and the fact that it is affecting inflation expectations with the pressure on the real,” said Thomas Haugaard, portfolio manager at Janus Henderson in in Copenhagen.

“Often we have to see the market react before painful changes occur, but for now it does not look like there will be a fiscal response to the recent turmoil.”

Congress late on Tuesday approved the main text of the bill but has not yet voted on some changes proposed by lawmakers, and Finance Minister Fernando Haddad said on Wednesday that the Senate is ready to vote on the bill as well as soon as Congress sends it.

“We are doing our part: putting (Congress) the measures, working to ensure that they are not watered down, and convincing people that these measures are necessary to strengthen the fiscal framework, Haddad said.

Brazil's central bank held US dollar spot auctions for the third consecutive session on Tuesday and reaffirmed its tight monetary policy stance.

“The central bank went up more than expected and they have been interfering with the currency until they do their part,” said Shamaila Khan, head of fixed income for emerging markets and Asia Pacific at UBS Asset Management.

The benchmark local sovereign bond yield closed at 14.77% on Wednesday, after hitting 14.847% on Tuesday, the highest level since March 2016. The yield started this year around 10.5%.

“At this point the bar is very, very low for a positive fiscal surprise,” said Arif Joshi, co-head of the emerging markets debt platform at Lazard (NYSE:) Asset Management.

He said fiscal consolidation must move beyond bets that make stronger growth on the fiscal side look healthier and into spending cuts.

“He always starts with baby steps and builds from there,” Joshi said. “We're not looking for the full bazooka, we're looking for baby steps along the way.” right.”

Five-year credit default swaps, the cost of insuring against sovereign default, stood at 194 basis points according to S&P Global Market Intelligence – the most expensive since October 2023.

© Reuters. Real Brazilian pounds and US dollars are seen in this photo taken December 18, 2024. REUTERS/Amanda Perobelli/Illustration

MSCI Brazil's dollar-denominated index has fallen more than 30% since the start of the year.

Brazil's nominal budget deficit, including interest payments on public debt, has risen to 9.5% of GDP from 4.6% when President Luiz Inacio Lula da Silva took office in January 2023.





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