SAO PAULO/BRASILIA -Brazil's currency rebounded on Friday from record intraday lows after congressional leaders said they would put the brakes on government income tax reform, and the finance minister stressed that fiscal commitment goes beyond a new spending cuts package.
Investors have been doubtful about the scope and effectiveness of the measures presented by President Luiz Inacio Lula da Silva's administration this week to slow down expenses to sustain a fiscal framework passed last year. Before his remarks, Lower House Speaker Arthur Lira and Senate head Rodrigo Pacheco said that broader income tax exemptions proposed by the Lula administration were a topic for the future, and the near-term focus would be on passing spending cuts.
"The remarks by the heads of both houses of Congress are extremely relevant and indicate that there is an effort to regain some of the trust that was lost in the process," analysts at brokerage XP in savings over the next two years. Speaking at the same event as the finance minister, Galipolo, the current central bank monetary policy director, added that the exchange rate is floating, which is important for absorbing shocks.
"What weighed heavily was the indication of including the income tax reform alongside the package," said Daniel Leal, strategist at BGC and former coordinator of public debt operations at the Treasury.Haddad said at the event on Friday that the Lula administration was"aligned" with Lira and Pacheco on the fiscal issue, and reiterated that any income tax reform would only be voted on by lawmakers if it proved to be fiscally neutral.