Brazil’s currency hits record low on skepticism about fiscal measures
4:58 pm Wednesday, November 27th, 2024
By Marcela Ayres
BRASILIA (Reuters) -Brazil’s currency hit an all-time low on Wednesday as investors who had been expecting news on public spending cuts braced for a televised evening address from the finance minister focused on an expanded income tax exemption.
Government debate over fiscal measures has been driving volatility in Brazilian markets for more than a month, amid concerns the government has not done enough to meet new budget rules passed last year to rein in the growth of public debt.
Finance Minister Fernando Haddad was scheduled to speak at 8:30 p.m. local time (2330 GMT), with remarks regarding “efficient government” and building a “fair country,” according to the Finance Ministry.
Labor Minister Luiz Marinho told reporters in Brasilia on Wednesday afternoon that the measures to be announced would include an income tax exemption for individuals earning as much as 5,000 reais ($850) per month, up from 2,824 reais currently.
The Brazilian real slipped 1.8% on the news to 5.91 per U.S. dollar, its weakest close ever. Brazil’s benchmark Bovespa stock index slid 1.4% and long-term interest rates climbed sharply higher.
“The market was expecting something more concrete, relevant, on spending cuts,” said Lucelia Freitas, a foreign exchange specialist at Manchester Investimentos. “But the announcement on tax income went in the opposite direction.”
Marinho also said the package would include measures for taxing the “super-rich” and curbing the pay of the highest-earning public servants, without giving details.
The expanded income tax exemption, which experts estimate could reduce government revenues by up to 100 billion reais depending on its scope, fulfills a campaign promise by leftist President Luiz Inacio Lula da Silva.
Investors had been focused on measures to curb mandatory spending growth after Haddad himself suggested debate on the tax exemption would likely be postponed until next year.
A government official, speaking on condition of anonymity, expressed disappointment with the inclusion of the tax exemption in Wednesday’s speech, warning it could overshadow new spending controls and hurt talks in Congress over the fiscal package.
Haddad has said he believes the package could be approved by Brazil’s Congress this year.
The government is expected to present more details of its proposed fiscal measures on Thursday morning, Marinho said.
(Reporting by Marcela Ayres and Victor Borges in Brasilia, and Fabricio de Castro in Sao Paulo; Writing by Andre Romani; Editing by Brad Haynes, Chizu Nomiyama, Alistair Bell and Paul Simao)
