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%.