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Capital Markets

Brazil's currency war: what is it good for? Absolutely nothing

Analysts tell Euromoney that Brazil's staunch stance on controlling its currency and capital inflows could be detrimental to the markets and the economy as a whole

On Thursday, Brazil’s finance minister Guido Mantega revealed that the so-called IOF tax would extend the 6% financial transactions tax to foreign loans with maturities of up to three years, instead of two years.

The latest report from Euromoney's Sao Paulo-based correspondent says:

International investors are outraged over Brazil’s “currency war” with the US and Europe, after Brazil’s latest attempt to manage its currency – by extending the IOF tax on all foreign borrowings – fanned speculation it will pursue a tighter control over capital inflows in its economy.

However, the lack of reinstatement of the scrapped IOF tax on international investment in Brazilian equities in early December, which was largely to blame for the heavy fall in the Bovespa in 2011, does provide a shred of relief for some market players.

For the full story, Investors accuse Brazil of “jerry-rigging currency”, click here.

Meanwhile, EuromoneyFXnews has reported that while Brazil declares a currency war, this creates buying opportunity in real.

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