Brazil: Brazilian real depreciates as the government extends IOF tax
March 16, 2012
On 16 March, the Brazilian real (BRL) traded at 1.81 per USD, which was 5.1% weaker than the level registered on the same day the previous month. The mid-March loss contrasted February's 1.7% rise, when the BRL traded at 1.72 per USD. In annual terms, the real has lost 10.6% compared to the same month last year. On the other hand, on a year-to-date basis, the real has gained 3.1% on the back of massive inflows from investors seeking higher returns in emerging markets. Recent weakening of the real can be related with the efforts of the Brazilian government to curb excessive capital inflows, which are mainly geared towards short-term investments in Brazil's financial markets. On 12 March, Finance Minister Guido Mantega extended the 6% financial operations tax (IOF, Imposto sobre Operac?es Financeiras) on short-term foreign loans and bonds of maturity to up to five years. Moreover, the Brazilian Central Bank (BCB) also stepped up measures to weaken the local currency and, on 29 February, held a reverse currency swap auction in which it bought U.S. dollars, bringing down the value of the real to 1.72 per USD.