Brazilian Real rises on speculation President Dilma Rousseff will reassure levy

This is an arrangement of Brazilian currency, the Real, Feb 28, 2005 in Buenos Aires, Argentina.
This is an arrangement of Brazilian currency, the Real, Feb 28, 2005 in Buenos Aires, Argentina. PHOTO: BLOOMBERG

(Bloomberg) - Brazil's real climbed from a 12-year low as speculation eased that Finance Minister Joaquim Levy was preparing to leave his post amid budget turmoil.

The currencyrose for the first time in five days on bets that President Dilma Rousseff will reassure Levy at a meeting Thursday afternoon that she supports his efforts to shore up finances and avoid a junk credit rating. While Mr Levy is cancelling his trip to the Group of 20 meeting in Turkey, he will probably stick with plans to visit Madrid and Paris.

"There is talk in the market that he will add to his power within the government," Mr Mario Battistel, a currency trader at Fair Corretora de Cambio e Valores, said from Sao Paulo.

"The concern in the market was that he was losing influence."

The real appreciated 0.3 per cent to 3.7493 per dollar at 4:20 p.m. in Sao Paulo after closing Wednesday at the weakest level since December 2002.

Swap rates fell 0.09 percentage point to 14.71 per cent on the contract maturing in January 2017 a day after the central bank refrained from raising borrowing costs for the first time in eight meetings.

The administration got a boost when Brazil's lower house approved text of a bill that would increase taxes on banks' profit to 20 per cent from 15 per cent until the end of 2018.

President Rousseff told reporters this week that Levy is not isolated even after several of his recent proposals aimed at avoiding a sovereign credit-rating downgrade were blocked.

Canceled Auction The Treasury cited market conditions when it cancelled an auction of local fixed-rate government bonds for the first time in 19 months as a sell-off in the country's assets pushed borrowing costs to a six-year high.

Yields on local bonds maturing in 2017 dropped 0.06 percentage point to 14.75 per cent after increasing Wednesday to the highest since December 2008.

The central bank held the target lending rate at an eight- year high of 14.25 per cent after seven straight increases totaling 3.25 percentage points. The decision was unanimous, and policy makers reiterated a pledge to leave borrowing costs at the current level for a prolonged period to bring inflation down to 4.5 per cent by the end of 2016.