Bloomberg News

Brazil Real Drops on New Currency Measure to Tax Loans

March 02, 2012

(Corrects location in second paragraph.)

Brazil’s real headed for its first weekly decline in three after the government unveiled new measures late yesterday to stem gains in the currency.

The real weakened 1.1 percent to 1.7327 per U.S. dollar at 4:36 p.m. in Sao Paulo, from 1.7142 yesterday. It has lost 1.3 percent this week. The yield on the Brazilian interest-rate futures contract due in January 2013 fell 12 basis points, or 0.12 percentage point, to 9.03 percent as traders stepped up bets on rate cuts.

The real declined after the central bank said Brazilian exporters will start paying a 6 percent tax on some foreign loans as the government tries to stem a rally that Finance Minister Guido Mantega says is being fueled by a “currency war.” It was unveiled late yesterday, following a morning announcement that the government would expand a levy on foreign loans and bonds to include debt with durations of three years or less.

“The government is trying to close all the loopholes that it sees in the currency markets,” Jose Carlos Amado, a currency trader at Renasenca DTVM Ltda, said by phone from Sao Paulo. “A lot of money was coming in this way.”

The currency extended declines after the central bank said it bought dollars in the spot market at a second auction today. The bank said in a statement it purchased the U.S. currency for 1.7260 reais each.

In the first two months of the year, exporters brought $8 billion in loans into the country under advanced payment agreements, a 46 percent jump from the same period a year ago, Aldo Mendes, the central bank’s director of monetary policy, said yesterday. Starting today, such debt will only be exempt from the new tax if it matures in no more than 360 days, he said.

2012 Rally

The real has rallied 7.8 percent this year, the second-best performer among major currencies behind the Mexican peso.

Brazilian policy makers resumed efforts to rein in currency gains last month, with the central bank buying dollars in the spot and forward markets. The bank also auctioned currency swaps and bought dollars in the spot market this week.

Interest-rate futures yields plunged, with the yield on the January 2013 contract headed for the biggest drop in more than a month, amid speculation the central bank will lengthen the cycle of interest-rate cuts to reduce the appeal of Brazilian assets and deter speculative capital inflows.

“It’s still a reflection of these currency measures,” Solange Srour, chief economist at BNY Mellon ARX, said by phone from Rio de Janeiro. “The market believes the central bank will use lower rates to help control currency appreciation. This liquidity abroad seems to be a big worry of the central bank.”

‘Expansionary Policy’

Policy makers in the U.S., Europe and Japan are adopting an “expansionary policy” to shore up economic growth in a move that is causing a jump in capital inflows to emerging markets, Central Bank President Alexandre Tombini said this week during Senate testimony in Brasilia.

Rate futures also fell on reports the government is close to announcing new rules that would change the way returns on savings accounts are calculated, paving the way for further rate cuts, Srour said.

The Finance Ministry and the central bank are finalizing a proposal to link future savings deposits to the benchmark Selic rate, Sao Paulo-based newspaper Valor Economico reported today, without saying where it obtained the information.

Existing deposits would continue to earn the same return of 6 percent plus the reference rate, known as the TR rate, Valor said.

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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