São Paulo – After the second increase in the Tax on Financial Operations (IOF, in the Portuguese acronym) on fixed income investment by foreigners, this time from 4% to 6%, the dollar has finally begun appreciating on the Brazilian market. Early this month, the tax had gone from 2% to 4%, but had had little effect on the market. This Thursday (21st), the United States currency appreciated by 1.19% and is now equivalent to 1.695 Brazilian real, after having dropped to 1.66 real as of Thursday last week.
By early afternoon this Friday (22nd), the dollar was equivalent to 1.695 real, a 0.70% decline over Thursday. The measures announced early this week to curb the falling dollar and keep Brazilian exports competitive also included an increase in the IOF, from 0.38% to 6% on foreign investment in the futures market.
The market, however, remains somewhat apprehensive that the Ministry of Finance will adopt new measures to curb the real’s appreciation, such as raising the IOF on foreign variable income investment. This would bring down the gains of foreign investors on stock exchanges. The Central Bank is also making spot market dollar purchases to reduce the impact of the strong inflow of the currency into Brazil.
According to the minister of Finance, Guido Mantega, the depreciation of the dollar is also part of a global trend, as countries attempt to depreciate their currencies in order to keep their products competitive on the international market. This worldwide exchange rate war will be one of the themes of the meeting of ministers of finance and central bank chairmen from the G20 countries, which began this Friday in South Korea.
*Translated by Gabriel Pomerancblum
