LatinNews Daily Report - 13 June 2013

ECONOMY | Mantega eliminates IOF on currency derivatives as Real hits new low. On 12 June Finance Minister Guido Mantega suspended the 1% financial operations tax (IOF), stating: “With the dollar strengthening, it doesn’t make sense to keep this obstacle in place. We are reducing the IOF so there will be greater supply of the dollar in the futures market.” The IOF, implemented in July 2011, was imposed on bets against the dollar in the futures market in a bid to weaken the Real. However with the Real now down at R$2.15/US$1, the government is trying to prop it up.  On 4 June Mantega zero rated the 6.0% IOF levied on foreign portfolio inflows into fixed income investments. Mantega said that the move was designed to precipitate the expected move by the US Federal Reserve (Fed) to end its policy of 'quantitative easing'.  Emerging market currencies are under strong depreciatory pressure for several reasons. One is continued international market volatility amidst a still- fluctuating global economic scenario, including concerns about growth in China and its emerging market trading partners. Another is a flight of capital back to the dollar on falling global commodity prices and in anticipation of the Fed's move.

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