Brazil: Brazilian real gains in June
June 30, 2011
On 30 June, the Brazilian real (BRL) traded at 1.56 per USD, which represents a gain of 1.2% compared with the 1.58 BRL per USD observed at the end of May. On a year-on-year basis, the real appreciated by 16.9% nominally versus the USD. Strong economic growth and a high SELIC interest rate attract large capital flows from advanced economies where nominal interest rates remain low, thus increasing the demand for the real, which is trading at historically high levels. In order to stem the appreciation, the Central Bank began to intervene directly in the foreign exchange market in early 2011 and the Finance Ministry raised the so-called financial operations tax (IOF, Imposto sobre Operac?es Financeiras). Moreover, on 5 July, Brazil's Finance Minister Guido Mantega stated that further measures might be implemented, including restraining trading in the futures and derivatives markets. Nevertheless, as inflation in Brazil hit a six-year high in June, policymakers are likely to be more indulgent with the appreciation of the real, as a stronger currency helps the Central Bank in containing inflation.