Brazil has hiked its tax on foreign purchases of Brazilian debt to 6% from 4%.
The earlier 4% rate apparently failed to mitigate global demand for Brazilian assets as strength continued for the Brazilian currency, the real.
Finance minister Guido Mantega told reporters, “This currency war needs to be deactivated. We have to reach some kind of currency agreement,” according to Bloomberg.
Countries such South Korea and Indonesia are also mulling capital flow deterrents or restrictions, and remember that Thailand recently slapped a 15% tax on foreign investment in bonds as well.
Brazil feels like its losing the battle to stem its currency’s strength, but what’s odd is that, really, the Brazilian currency has merely appreciated to the level it was at just two years ago, as shown below. It’s thus likely Brazil has been more shocked by the volatility of its currency’s move rather than the real’s absolute level.