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Jun 17

Brazil didn’t fix inflation and now it’s paying the price

Protests in Brazil

High inflation, poor investment in education, healthcare and corruption leads to massive protests

Brazil didn’t fix inflation and now it’s paying the price

  • IOF TAX cut from 6% to 0%
  • Inflation hitting the ceiling of central bank’s 6.5%
  • US$ hits R$ 2.166
  • Lacklust GDP growth by just 0.6% in the first quarter
  • Third round of dollar-selling intervention by the Brazilian central bank

Brazil cuts its IOF tax, a federal tax on financial operations that levied 6% on fixed-income investments 

Finance Minister Guido Mantega announced late Tuesday that Brazil was reducing the IOF financial transactions tax on fixed-income investments to 0% from 6%, removing a barrier implemented to stem so-called “hot money” inflows. The U.S. dollar has rallied in recent weeks amid talk that the Federal Reserve would curtail its asset-buying program known as “quantitative easing.” The changing global scenario now makes the tax unnecessary, Mr. Mantega said.

“This is a long-term measure–it’s not for an immediate effect,” Mr. Mantega said, speaking to reporters outside the ministry. “We want to leave investors free to invest in fixed-income and Brazilian government securities.”

Selic raised to 8%

Brazil’s central bank over the past two months as part of its effort to fight inflation raised the country’s base Selic interest rate by three-quarters of a percentage point to 8.0%.