Rumors began circulating early this week that Rousseff, who was handpicked by Lula in 2010 to succeed him as president, would appoint him to her cabinet.
The Brazilian real depreciated by more than 4 percent against the U.S. dollar as a result of the speculation, but bounced on Thursday on the news of the judge blocking Lula's appointment.
"Giving Lula an appointment that gives immunity from prosecution gives the wrong signal to markets — the course of justice has been prevented," Blanco told CNBC by phone on Tuesday.
At a news conference on Wednesday following the announcement, Rousseff told journalists that she was "very happy," according to several reports.
"His joining my government strengthens my government," she said, "Many people don't want it to be strengthened. But he is coming and he's coming to help."
A transcript published by domestic media on Wednesday details a phone conversation between Lula and Rousseff that was allegedly taped by Brazilian Federal Police. In it, Rousseff says that her main goal in inviting Lula to join the cabinet is to try to avoid his detention.