By Tim Seymour
The Brazilian real (NYSEARCA:BZF) is unable to hold its gains after removal of the IOF tax. After being 1.4% higher this morning, the currency is almost flat. This lack of follow through on removing a tax that was major news when they announced it is disappointing but not surprising on both a Brazil level and an emerging market level overall.
The IOF tax was a big deal when it was initiated as a curb to hot currency flows and a view the Brazil was becoming uncompetitive.
Clearly that is now not the case. In Brazil an overheating economy is not on the horizon, yet Dilma’s policies have been inflationary or at least expectations are that inflation is moving higher.
Brazil is not growing (1.2% recent GDP).
Overall emerging market currencies are weakening and not receiving the boost they received from QE1 or from pre-crisis risk aggression.