Brazil plans its approach to prevent dollar hike from driving inflation

Criado em 20/08/13 11h06 e atualizado em 20/08/13 11h54
Por Daniel Mello / Wellton Máximo Edição:Fábio Massalli / Nira Foster Fonte:Agência Brasil

São Paulo – Brazil's Minister of Finance, Guido Mantega, said on Monday (August 19) that the government is planning its steps to prevent the current dollar hike from driving inflation up. “There are a few countermeasures we can use, like reducing taxation on certain inputs that had risen in September last year,” the minister said.

The minister admitted that the dollar appreciation may create price pressures in the domestic market, but noted that the effect has not been felt yet. “We don't know where this [dollar hike] is going. While we do expect consequences, nothing has happened so far.” In spite of the unpredictable threats, Mantega is positive that the situation is under control. “We have no fear of some serious issue coming up, things are under control. We have US$370 million in reserves to see ourselves through any further issues,” he said.

By Monday (August 19), the dollar went up 0.38% and closed at R$2.4159, its highest rate since March 3, 2009 when it traded at R$2.441.

Instability climbed up after June 19, when the Federal Reserve chairman, Ben Bernanke's, suggested that the Fed might slow down bond purchases until the end of the year if the US economy continued to recover. Cuts on this Fed aid shorten outstanding dollars in the market, driving its exchange rate up worldwide.

Over the past few months, the Brazilian government has taken a number of steps to curb the dollar hike. In addition to selling dollars in the futures market, the Central Bank loosened its reserve requirement for bets against the dollar and eliminated time restrictions for exporters to repay their cash advancements.

The economics panel also lifted barriers on the inflow of foreign money to the country. The Ministry of Finance zeroed the Tax on Credit Operations, Exchange and Insurance (“IOF”) for both fixed-income foreign investments in Brazil – the rate was 6% since October 2010 – and selling foreign currency on the futures exchange market.

Edition: Fábio Massalli / Nira Foster
Translation: Mayra Borges/Olga Bardawil

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