Brazil's Real Slumps Against Dollar After Government Cuts Fiscal Targets

 
   By Jeffrey T. Lewis 
 

        SAO PAULO--The Brazilian real slumped against the dollar Thursday amid growing concern about the government's ability to reduce debt and maintain its investment-grade credit rating.
        The real was trading at 3.2776 to the dollar at 10:57 a.m. Sao Paulo time (1:57 p.m. GMT), according to Tullett Prebon via FactSet, after closing at BRL3.2318 on Wednesday.
        The Brazilian currency clawed back some ground after reaching BRL3.2951 to the dollar in early trading Thursday. The real closed at about BRL3.2996 on March 19 of this year, its weakest close in about 12 years.
        Brazil's finance minister, Joaquim Levy, announced Wednesday evening that the government wants to slash its target for the primary budget surplus for this year, and will reduce it for 2016 and 2017 as well, because weak economic growth has cut tax revenue. The target is a measure of the government's ability to reduce debt.
        The real's plunge "is a reaction to last night's announcement," said Luiz Carlos Baldan, a director of the Fourtrade brokerage in Sao Paulo. "There was already a lot of volatility in the market, because of Greece and other things, and the change to the target made things worse for us."
        The target was cut to BRL8.7 billion ($2.7 billion), or 0.15% of gross domestic product, from BRL66.3 billion. Brazil's Congress will have to approve the change.
        President Dilma Rousseff's economic team late last year set an ambitious target for the primary surplus in an attempt to convince investors and rating agencies that the government is serious about cutting its budget deficit and reducing debt.
        But Wednesday's announcement was an acknowledgement the government is having trouble balancing its books and trimming a debt load that has soared to 62.5% of GDP.
        --Paulo Trevisani in Brasilia contributed to this report.
        Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com
        (END) Dow Jones Newswires

        July 23, 2015 10:11 ET (14:11 GMT)

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