Brazil Ready to Take Steps to Stem Currency Rally If Needed

Brazil’s government may impose taxes on financial operations to respond to any speculative inflows of foreign capital, Finance Minister Guido Mantega said.

The U.S. Federal Reserve’s new round of monetary easing, known as QE3, has stimulated the “currency war,” Mantega said at an event in London. “If there is a great inflow of American currency, we will either have to increase our reserves or intervene in markets,” he said. If necessary, “we will adopt measures of taxing financial operations,” he added.

“The currency war is a reality that is used by various countries,” Mantega said. The government will not permit a loss of competitiveness, he said.

President Dilma Rousseff’s administration in recent months has cut borrowing costs, lowered taxes on company payrolls and consumer goods and reduced bank reserve requirements to spur the economy after a yearlong slowdown. Since the U.S. Fed announced QE3 last week, Brazil’s central bank has intervened repeatedly in currency markets to weaken the real and protect the competitiveness of Brazilian industry. Earlier this month, Brazil also boosted tariffs on 100 products.

It is not correct to say that Brazil is protectionist, Mantega said. “It is very natural that companies defend themselves from the actions that do not necessarily bring them direct economic benefit,” he said.

Interest rates in Brazil will continue to be low, and the government has room for more rate cuts, he said.

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net;

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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