(Changes wording with resignation of officials)
By Marcela Ayres and Maria Carolina Marcello
BRASILIA, Oct 21 (Reuters) – Four high-ranking Brazilian Treasury officials resigned on Thursday as signs emerged that the government is seeking to lift a constitutional spending cap, hitting Brazil’s equities and currency and pushing up. interest rate futures.
With President Jair Bolsonaro’s popularity declining and the media focused on a Senate investigation calling for criminal charges for his handling of the pandemic, the president has pushed for the government to increase spending ahead of next year’s elections.
Economy Minister Paulo Guedes said on Wednesday that the government was considering requesting a 30 billion reais ($ 5.3 billion) exemption from the spending ceiling, to boost social spending at the president’s request.
In a sign of growing disagreement on fiscal issues, Brazil’s two top Treasury officials and their two alternates presented their resignations on Thursday “for personal reasons,” according to a statement from the economy ministry.
Allies in Congress have worked hastily to make room for more spending during the election year.
Lawmaker Hugo Motta offered Thursday to change the schedule for an annual spending limit adjustment as part of a constitutional amendment to split the government’s debt payments ordered by a court.
Taken together, the measures would open space for nearly 96 billion reais of additional spending next year, Felipe Salto, head of the Senate’s IFI watchdog, tweeted, citing preliminary estimates.
In remarks on Thursday, Bolsonaro promised aid to some 750,000 truckers to offset the rise in diesel prices, without giving details. He also reiterated his promise to more than double payments from Brazil’s main social assistance program in a fiscally “responsible” manner, although the markets ignored his guarantees.
Brazil’s benchmark stock index, the Bovespa, plunged around 3% to its lowest levels since November. The real weakened 1.90% to levels close to 5.7 units per dollar for the first time since April.
Markets closed before the Economy Ministry announced the departure of Bruno Funchal and Jeferson Bittencourt, two of Guedes’ most important advisers on fiscal policy.
Interest rate futures showed bets on even more aggressive rate hikes by the Central Bank to contain annual inflation, which is in double digits in percentage.
JPMorgan analysts changed their outlook for upcoming monetary policy meetings, forecasting that the central bank will raise rates by 125 basis points next week and again in December, rather than its previous forecast of continuous increases of 100 basis points.
The proposal to exempt more social spending from the spending cap “is already jeopardizing the credibility of fiscal sustainability,” they wrote, adding that monetarists may become even more aggressive with an increase of 150 basis points next week.
JPMorgan analysts warned of a new “counterproductive” stimulus by forcing the central bank to tighten financial conditions, threatening a forecast that the economy will grow 0.9% next year.
(1 dollar = 5.6870 reais) (Report by Marcela Ayres and Maria Carolina Marcello in Brasilia; Additional report by José de Castro in Sao Paulo; Written by Brad Haynes. Edited in Spanish by Rodrigo Charme, Javier Leira and Manuel Farías)