BRASILIA, April 23 (Reuters) - Brazil’s real sank to a new low through 5.50 per dollar on Thursday, slammed by a wave of political uncertainty surrounding two of President Jair Bolsonaro’s most powerful, trusted and respected ministers.
Justice Minister Sergio Moro has threatened to quit if Bolsonaro goes ahead with plans to change the head of the federal police, a person with knowledge of the matter told Reuters, while traders say Economy Minister Paulo Guedes appears to be increasingly on the fringes of economic policymaking.
The two men are widely referred to as Bolsonaro’s “super ministers” due to their power, influence and wide remits.
“Moro and Guedes,” said one fund manager in Sao Paulo, explaining the real’s 2% slide on Thursday.
“There’s also a narrative that Guedes is unhappy with this spending initiative going on,” he said, referring to the “Pro-Brazil” investment plan announced on Wednesday by two military officials in Bolsonaro’s Cabinet rather than Guedes or anyone from the Economy Ministry.
The real traded as weak as 5.53 per dollar. On Jan. 1 it was worth 4.00 per dollar, meaning it has lost more than 27% of its value against the greenback so far this year.
The central bank twice intervened selling dollars via the foreign exchange swaps market, but the downward pressure on the real barely lifted.
Economists at Swiss investment bank UBS on Thursday said the real could fall to as low as 5.75 per dollar this year and slide all the way to 7.30 per dollar next year in the most pessimistic scenario.
While not their base case, this “could materialize depending on the post-crisis policy reaction, especially in relation to growth and the fiscal path,” Tony Volpon and Fabio Ramos wrote.
“Brazil has some of the highest levels of indebtedness amongst larger emerging markets and has seen low levels of growth after the 2014-2016 recession,” they noted.
Gross debt as a share of gross domestic product is expected to rise to 85% or higher, while several banks and global institutions reckon the economy will shrink by 3% or more this year. (Reporting by Jamie McGeever in Brasilia Editing by Leslie Adler and Matthew Lewis)