Brazil Real Rises as Stock Tax Break Seen Boosting Flow of Funds

Brazil’s real advanced to a one-week high after the government removed a tax on companies selling shares in international markets.

The real appreciated 0.2 percent to 2.3536 per U.S. dollar at the close of trading in Sao Paulo, paring its quarterly decline to 5.8 percent, still the worst performance after the Japanese yen among 16 major currencies tracked by Bloomberg. Swap rates on contracts maturing in January 2016 increased three basis points, or 0.03 percentage point, to 11.77 percent after falling four basis points.

Brazil is unwinding capital controls that had sought to limit dollar inflows as the real climbed to a 12-year high in July 2011. The government cut a tax on foreign investment in fixed income in June and two months earlier eliminated levies on loans for the purchase, production and leasing of capital goods.

“This is an adjustment measure,” Jose Carlos Amado, a currency trader at Renascenca Dtvm in Sao Paulo, said in a telephone interview. “The government should do all it can to boost the inflow of capital.”

The 1.5 percent tax on the conversion of local shares into depositary receipts dates from November 2009 and was an attempt to balance out a levy on foreign investments in local stocks that has been removed, interim Deputy Finance Minister Dyogo Oliveira told reporters in Brasilia on Dec. 24.

Brazil’s shorter-term swap rates dropped earlier today as a report that showed inflation slowed more than forecast added to speculation that policy makers will limit further increases in benchmark borrowing costs.

Slower Inflation

Consumer prices in Brazil’s seven biggest cities climbed 0.66 percent in the month ended Dec. 22 after rising 0.75 percent in the prior period, the Getulio Vargas Foundation reported today. The median forecast of economists surveyed by Bloomberg was 0.73 percent.

“This result increases the chance that 2013 inflation is slower than last year’s,” Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil in Sao Paulo, said in a telephone interview.

Central bank President Alexandre Tombini said Oct. 11 that inflation will end 2013 below last year’s 5.84 percent. The 5.85 percent increase in the index of consumer prices in the year through mid-December exceeded all estimates from economists surveyed by Bloomberg.

Brazil has lifted the target lending rate by 2.75 percentage points since April to 10 percent, the biggest increase among 49 central banks.

The real has tumbled this quarter on concern Brazil’s fiscal deterioration will lead to a reduced credit rating and amid speculation that the tapering of Federal Reserve stimulus will sink demand for the nation’s assets.

Brazil sold foreign-exchange swaps worth $498 million today as part of the intervention announced in August to support the currency and limit import price increases. The central bank said Dec. 18 that it plans to scale back the program next year.

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