Bloomberg News

Brazil Real Gains as Rousseff Orders Economic Stimulus Measures

April 03, 2012

Brazil’s real rose for the first time in three days as President Dilma Rousseff ordered economic stimulus measures and a report showed the nation’s industrial production increased the most in a year.

“Industrial production was more than expected,” Luciano Rostagno, the chief strategist at Banco WestLB do Brasil SA, said in a phone interview from Sao Paulo. “The government’s packet of measures is also creating expectations.”

The real rose 0.4 percent to 1.8246 per U.S. dollar. It briefly erased gains as Federal Reserve minutes indicated U.S. policy makers are holding off on increasing monetary stimulus, sapping demand for higher-yielding assets.

The real fell 6 percent in March, the biggest decline among all currencies, as Finance Minister Guido Mantega expanded financial taxes to discourage capital inflows and the central bank stepped up dollar purchases. It was the real’s biggest monthly slide since a 15 percent plunge in September.

The currency rallied today as Rousseff ordered tax cuts and other stimulus measures to protect the country’s industry from what she said were “predatory” trade practices by wealthy nations.

As part of a package of measures announced today, the government will eliminate a payroll tax for employers in 15 industries hardest hit by a surge in imports and expand subsidized lending by the state development bank to boost exports and investment.

1.80 Per Dollar

Brazil will also take more steps “as needed” to drive down the currency, Mantega said, adding that a real weaker than 1.80 per dollar is reasonable.

The central bank said it bought dollars in the foreign- exchange market at an auction today at a rate of 1.8242 reais each.

The yield on the interest-rate futures contract due in January 2014 rose three basis points, or 0.03 percentage point, to 9.47 percent as traders pared bets on how much the central bank will cut borrowing costs. Policy makers have lowered the benchmark rate 2.75 percentage points since August to 9.75 percent to bolster growth.

Industrial production increased 1.3 percent in February from the previous month, the national statistics agency said. The median estimate of 44 economists surveyed by Bloomberg was for an increase of 0.6 percent.

Rousseff’s stimulus package and the rebound in industrial output following a 1.5 percent drop the previous month “reduce the likelihood that the central bank will be dovish and make further cuts,” Italo Lombardi, a Latin America economist at Standard Chartered Bank, said by phone from New York.

To contact the reporters on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net; Josue Leonel in Sao Paulo at jleonel@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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