UPDATE 2-Brazil removes tax on foreign loans; aims to limit FX fall

miércoles 4 de junio de 2014 10:46 GYT
 

(Adds context and comments from Finance Minister Mantega and analyst)

By Alonso Soto

BRASILIA, June 4 (Reuters) - Brazil removed a 6 percent tax on some short-term foreign loans on Wednesday in a move that could help the central bank stem a recent depreciation of the local currency that has threatened to stoke iflation.

Authorities were caught off guard on Monday by a rapid drop in the value of the real, which slid 1.5 percent to its lowest in nearly two months on speculation that the central bank may reduce its intervention program in the foreign exchange market.

The bank was able to limit the depreciation by announcing it was doubling the rollover of currency swaps, derivatives that provide investors with hedge against currency losses.

The finance ministry removed the tax, called an IOF tax, on international loans with maturities of between six months and a year, saying it would help lower financing costs for local companies and banks.

"I think it serves both purposes; the government reduces the cost of foreign financing and at the same time opens the door for more dollars to limit the depreciation (of the real)," said Jankiel Santos, chief economist at Espirito Santo Investment Bank.

"It also signals that the central bank may reduce its forex program."

A weaker real raises the value of imports, adding inflationary pressure. Inflation has slowed recently, but remains very close to the 6.5 percent ceiling of the official range.   Continuación...