MercoPress. South Atlantic News Agency

Carnival hangover could bring capital ‘quarantine’ for speculative inflows

Brazil concerned with the loss of competitiveness at the Real continues to appreciate

The Brazilian government is considering additional foreign exchange measures to contain the rapid appreciation of the Real, a source inside the Finance Ministry told the Sao Paulo Estado news agency Friday.

The measures could be announced after the conclusion of Brazil's Carnival holiday, which runs through midday Wednesday, Estado reported. According to the Finance Ministry source, central bank President Alexandre Tombini and Finance Minister Guido Mantega have already discussed the measures, which are practically ready for implementation. “It will be a strong measure,” the source told Estado.

Brazil's government and capital markets will be closed through the Carnival holiday.

Brazil's currency has gained about 40% against the US dollar over the past two years amid strong economic growth and a surge of foreign investment inflows. The currency's strength has undercut Brazil's ample export base and caused a flood of cheap imports that have undercut the country's manufacturers.

The government has already taken several measures aimed at limiting speculative inflows, including twice raising a financial transactions tax known as the IOF to 6% as well as measures aimed at limiting short-dollar positions at Brazil's banks.

Among the measures under discussion is the entrance of Brazil's sovereign wealth fund in the foreign exchange market, Estado said. The government has already received approval for the fund to buy dollars on the open market, but the fund hasn't yet made any purchases. Further increases to the IOF tax and a possible quarantine for capital entering the country have also been discussed, the report said.