Brazil’s real weakened the most among major currencies on speculation the government will change this year’s budget target to show a deficit, highlighting its inability to shore up the country’s finances.
Officials will revise this year’s budget target for the third time, forecasting a deficit excluding interest payments of 0.3 percent of gross domestic product, worse than the current goal of a 0.15 percent surplus, according to a report by Folha de S. Paulo. The government is also expected to scrap plans to revive a tax on financial transactions, according to Valor Economico.
“Brazil continues to suffer from a negative feedback loop, linking a weak economy, fiscal slippage and rising credit risks,” Mark McCormick, a strategist at Credit Agricole CIB, said from New York. “The market is well aware the fiscal numbers are more a fantasy than reality, especially given the ongoing contraction in the economy.”
President Dilma Rousseff’s efforts to trim spending and raise taxes have met resistance from lawmakers concerned that the moves will hurt Brazil’s middle class. Fitch Ratings lowered Brazil’s debt rating to one level above junk Thursday, delivering the fourth downgrade under Rousseff’s watch, and said it could cut the grade again as government finances deteriorate.
The real dropped 1 percent to 3.8358 per dollar at 9:35 a.m. in Sao Paulo, ending two days of gains.
Brazil Energy Insight 
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