Brazilian real slides as government taxes currency derivatives

Brazil’s real declined by the most in more than a month after the government said it will levy a tax on some investments in foreign-exchange derivatives, the latest step in a bid to stem the currency’s rally.

The real dropped 1.1 percent to 1.5556 per dollar, the biggest decline since May 11, from 1.5391 yesterday. It earlier fell as much as 2 percent to 1.5704 per dollar, the largest drop since June 2010.

Brazil took further action to end a rally in the real after efforts to weaken the currency this year failed to prevent it from reaching a 12-year high against the dollar yesterday. The real tumbled after Brazil authorized the monetary council to charge a 1 percent tax on certain derivatives operations and to raise taxes on futures operations.

“This obviously increases the firepower of the government to fight a fight against the currency appreciation,” said Rogerio Oliveira, an emerging-markets strategist at Morgan Stanley in New York. “It makes it more expensive to trade the currency in the derivative market,” he said in a telephone interview.

Source: BusinessWeek.com