Brazil Tightens Currency Controls

Brazil has placed a 6% tax on international bond sales and loans with an average minimum maturity of up to 360 days. It is unclear if the measure, the latest in a series aiming to contain BRL appreciation, will have the desired effect. “We do not expect the decision to tax corporate issuance [to be] disruptive for BRL from a flow perspective,” says RBS. The measure reinforces a preference for a policy mix skewed towards macro prudential measures and away from less orthodox FX policies, adds the bank. It seems aimed at preventing excessive lending by taming banks’ credit lines from abroad, RBS says. Brazilian financial and non-financial institutions were using short-term instruments to bring money into Brazil, avoiding a ring-fence around 2689 foreign investor accounts that control foreign portfolio flows, says Barclays. The bank estimates that nearly a third of the $23bn inflows up to February came from such short-term debt. Barclays does not rule out further government measures if the real breaks through 1.65/USD mark, which it settled at Tuesday. Companies had previously paid a 5.38% tax on loans up to 90 days and zero when the maturity exceeded 3 months.