An influx of dollar to Brazil has helped the real to appreciate by nearly 35% since the start of 2009. (Click here to see the USD/BRL 2Y chart). To control this inflow of dollar to the country, the government raised so- called IOF tax on foreigners’ investments in fixed-income securities to 6 percent from 4 percent. It also boosted the levy on money brought into the country to make margin deposits for futures market trades to 6 percent from 0.38 percent.
In fact, people believe that this tool will not work because this measure impact directly in the long-term yield increasing the spreads and the volatility between the internal and external prices to buy any type of asset in Brazil. Still, with the U.S. interest rates at low levels investors seek higher returns in emerging markets confirming the tendency to a strenghtening of the brazilian local currency.
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