MercoPress. South Atlantic News Agency

Brazil’s Real will depreciate when the US and Europe raise interest rates

Finance minister Mantega is satisfied with the latest measures that limited the “torrential” inflow of dollars

Dollar inflows into Brazil are returning to normal levels, and the Brazilian Real will start to depreciate once interest rates in the US and Europe start to rise, said Brazil Finance Minister Guido Mantega. He also anticipated tax reforms to boost Brazilian competitiveness.

“When there's a change in the monetary policy in the advanced countries, the Real will depreciate,” Mantega said in an interview with The Wall Street Journal and Dow Jones Newswires. “How much, I don't know, but the real will depreciate, and that will help with the competitiveness of Brazilian companies”.

Brazil contained the “torrent” of dollars that poured into Brazil in the first three months of the year and, after a sharp reversal in April, inflows are returning to more normal levels, Mantega said.

“Brazil will attract external capital. We don't want to stop capital from coming in, we just don't want the torrent,” Mantega said.

Earlier this year, the Brazilian government imposed additional taxes on short-term overseas loans after becoming concerned that too much money was being borrowed abroad and turned into consumer loans in Brazil.

Mantega said the government continues to monitor overseas borrowing and will take additional steps if there is any “exaggeration” in the flows.

The minister also revealed that the government is meeting its fiscal targets for this year and the trade surplus is running ahead of expectations.

Meanwhile, the minister said he aims to have ready in two or three months two changes to the tax code, which he said would reduce the burden on companies and help boost their competitiveness. There's broad consensus in favour of tax reform, he said, and the measures could be approved this year, so as to come into effect in 2012.

The government wants to simplify the value-added tax charged by states known as ICMS and wants to eliminate a 20% federal payroll tax, Mantega said.

“These are two important reforms which will be done this year,” Mantega said. ”It will reduce the cost of labour without harming workers.