Brazil’s currency weakens amid government delays in announcing new fiscal measures

BRASILIA (Reuters) – Brazil’s currency weakened on Monday (NASDAQ:MNDY) as President Luiz Inacio Lula da Silva’s administration postponed the release of long-awaited spending-containment measures, despite earlier signals of an imminent announcement.

The real fell about 1% against the U.S. dollar, extending its decline for the year to over 16%.

The currency’s drop, which raises import costs and adds to inflationary pressures, follows the government’s hesitation to announce a fiscal package to curb the rapid rise in mandatory spending following Finance Minister Fernando Haddad’s suggestion that this would happen last week.

Since then, however, the government has offered no concrete timeline for the announcement, with Lula holding a series of meetings with his economic team and ministers from other areas likely to be affected by budget cuts.

“The inflationary impact of a weaker currency is severe and is already affecting market expectations,” said Paulo Gala, chief economist at Banco Master.

“A spending cut package would help with this, it would help reduce the risk premium on long-term interest rates and the exchange rate,” he noted, adding that Donald Trump’s victory in the U.S. presidential election is another significant factor fueling inflationary pressures ahead.

In a television interview on Sunday, Lula pledged to counter the “speculative greed” of financial markets, adding that Congress and the judiciary should also contribute to spending cuts.

Last year, Lula approved a new fiscal framework combining primary budget targets with a cap allowing for spending growth up to 2.5% above inflation.

But certain expenditures, such as pensions and some social benefits, have been rising much faster, squeezing other budget items like investments and operational costs under the overall spending cap.

Economists and some government officials acknowledge this trend could jeopardize the fiscal framework’s sustainability over the coming years, impairing its capacity to stabilize public debt growth.

“This spending cut package is necessary. It has to happen, regardless of any delay,” former central bank chief and finance minister Henrique Meirelles said.

Speaking at an event in Sao Paulo, however, he expressed doubt that the initiative would be enough to ease concerns over the growth of public debt, which he described as “unsustainable”.

This post is originally published on INVESTING.

  • Related Posts

    Russia’s claim of emissions in annexed Ukraine regions draws protests at COP29

    By Valerie Volcovici BAKU, Azerbaijan (Reuters) – Russia has included the territories it occupies in Ukraine in its recent greenhouse gas inventory report to the United Nations, drawing protests from…

    Oil prices settle up 1% at 2-week high as Ukraine war intensifies

    By Scott DiSavino (Reuters) -Oil prices climbed about 1% to a two-week high on Friday as the intensifying war in Ukraine this week boosted the market’s geopolitical risk premium. Brent…

    Leave a Reply

    Your email address will not be published. Required fields are marked *

    You Missed

    Russia’s claim of emissions in annexed Ukraine regions draws protests at COP29

    • November 23, 2024
    Russia’s claim of emissions in annexed Ukraine regions draws protests at COP29

    Weekly Brief: My Forex Funds Negotiating with CFTC?, Bitcoin Nears $100K, and More

    • November 23, 2024
    Weekly Brief: My Forex Funds Negotiating with CFTC?, Bitcoin Nears $100K, and More

    Oil prices settle up 1% at 2-week high as Ukraine war intensifies

    • November 22, 2024
    Oil prices settle up 1% at 2-week high as Ukraine war intensifies

    COP29 climate summit overruns as $250 billion draft deal stalls

    • November 22, 2024
    COP29 climate summit overruns as $250 billion draft deal stalls

    SEC Fines Webull, Two Broker-Dealers for Compliance Failures

    • November 22, 2024
    SEC Fines Webull, Two Broker-Dealers for Compliance Failures

    SEC Fines Webull, Two Brokers-Dealers for Compliance Failures

    • November 22, 2024
    SEC Fines Webull, Two Brokers-Dealers for Compliance Failures