Brazil took further action to end a rally in the real on Friday, a day after Finance Minister Guido Mantega said that a global currency war is still on.
Latin America’s largest economy will require that banks make non-interest-bearing deposits with the central bank equivalent to 60 percent of short dollar positions that exceed US$1 billion or their capital base, whichever is smaller, the central bank said in an e-mailed statement on Friday.
The rule, which banks will have five working days to implement, amends a regulation introduced in January that required banks to pay deposits on short positions above US$3 billion.
A short position is a bet that the price will fall.
Brazil is seeking to improve the working of the currency spot market and reduce bets that the real will strengthen which reached US$14.7 billion last month, the central bank said.
Last month’s long real positions were up from US$9.3 billion in May and the highest since December.
The real rose to as high as 1.5524 against the US dollar this week, the strongest level since 1999, as investors increased demand for higher-yielding assets amid easing concern over Greece’s debt crisis.
Brazil’s government has repeatedly complained that a stronger currency harms its exporters while rich nations boost their own exports by devaluing their currencies.
The central bank seeks to limit the real’s appreciation by making it more expensive to hold short positions on the dollar, Tony Volpon, a Latin America strategist at Nomura Holdings Inc in New York, said in a telephone interview on Friday.
“It will create a lot of distortions,” Volpon said. “Markets could be a little volatile for a few days.”
The measure is unlikely to be effective since Brazil’s interest rates are so enticing that investors will find ways to bring money into the country, Volpon said.
The real has gained 48 percent against the US dollar since the end of 2008, the most among 25 emerging market currencies tracked by Bloomberg.
Policymakers raised interest rates at their last four meetings, to 12.25 percent, and traders are betting they will raise rates twice more this year, according to Bloomberg estimates based on interest rate futures.
The real weakened 0.6 percent to 1.5625 against the US dollar on Friday.
In October, Mantega tripled to 6 percent a tax on foreign investors’ fixed-income purchases. On March 29, Brazilian President Dilma Rousseff’s administration increased to 6 percent a tax on new corporate loans and debt sales abroad by banks. A few days later, she applied the higher tax to renewed, renegotiated or transferred loans of as long as two years in length.
Companies previously paid a 5.38 percent tax on loans of up to 90 days and zero tax when the operation exceeded three months.
“The currency war continues because the recovery in advanced countries has led to expansionary monetary policies,” Mantega told reporters in Paris on Thursday.
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