Brazil real under pressure as risk of presidential impeachment increases

The Brazilian real continued to come under pressure amid a worsening political crisis and economic outlook, with some analysts holding out the possibility president Dilma Rousseff might have to face impeachment proceedings.

As of 1320 BST, the US dollar was trading at a record high of 4.2109 versus the Brazilian real, up 0.78% on the day.

That came as the country, embroiled in a deep political crisis and struggling to adjust to a slowdown in China, faced its worst recession in over two decades.

On Thursday, reports indicated the central bank had slashed its forecast for gross domestic product in 2015 to a 2.7% contraction from a previous estimate of 1.1% contraction.

The value of loans for construction and home purchase in Brazil dropped 36% in August versus the prior year to reach $1.41bn (£926m), industry group Abecip said on the previous day.

In addition, state-owned oil major Petrobras granted its chairman Murilo Ferreira a ‘leave of absence’ for personal reasons, although the company’s boss Aldemir Bendine was confident he would return.

The company has been immersed in a long-running scandal regarding kickbacks to politicians – including to the former treasurer of the governing Workers’ Party - during the time that Dilma Rousseff was its chairwoman.

Making matters worse, according to Bloomberg on 23 September, the leader of the lower house of parliament said in a report he might accept an impeachment request from opposition lawmakers.

The latter were asking for her head, alleging Rousseff had doctored the country’s public spending accounts for 2014, breached campaign financing laws and presided over corruption while at Petrobras.

“Impeachment proceedings will formally begin if Cunha accepts a request and the request is approved by aspecial committee created in the lower house.

“This is a further blow to an already fragile coalition which will have the task of passing fiscal reforms in order to correct debt overhangs created with large spending programmes over the past seven years (27% of GDP), at a time the government is mired in an ever-growing corruption scandal and the President’s approval rating is at a record low of 8%,” Alberto Gallo at RBS said in a research note sent to clients.