Brazilian central bank President Alexandre Tombini said the government needs to remain “vigilant” in fighting capital inflows that have pressured the currency, domestic demand and consumer prices in Latin America’s biggest economy.
Tombini, speaking yesterday at an event in Porto Alegre, said the very “strong” levels of inflows have slowed, in part at least due to the government’s imposition of capital controls. “After the very strong first quarter, which made the job of containing demand to control inflation all that more difficult, we’ve seen a important reduction in these flows,” Tombini said.
Near record-low interest rates among many of the world’s developed economies has led to a surge of inflows into emerging market economies, where policy makers have been raising borrowing costs this year. Brazil’s central bank, led by Tombini, has raised its benchmark rate four times to 12.25 percent in 2011. Net private capital inflows to emerging economies may reach $1 trillion in 2011 and rise to $1.1 trillion next year, according to a June 1 report by the Washington-based Institute of International Finance.
Brazilian President Dilma Rousseff’s administration on March 29 increased to 6 percent a tax on new corporate loans and debt sales abroad by banks. A few days later, it applied the higher tax to renewed, renegotiated, or transferred loans of up to two years.
In October, Finance Minister Guido Mantega tripled to 6 percent a tax on foreign investors’ fixed-income purchases.
Brazil’s net foreign-currency inflows from trade and financial transactions have amounted to $39.5 billion this year, exceeding the total amount of $24 billion received in all of 2010, according to the central bank.
Brazilian policy makers have bought $35.8 billion of U.S. currency this year through mid-June, more than double the $14 billion they purchased during the same period last year, to prevent those inflows from extending the real’s appreciation.
Since the end of 2008, Brazil’s currency has gained 45 percent against the dollar, the second-best performance among the 16 most-traded currencies after Australia’s dollar.
The country’s reserves have swelled 16 percent this year to a record $336 billion.
The real yesterday gained 0.1 percent to 1.5965 per dollar from 1.5978 on June 17.