The News at the Brazilian Stock Market

The Brazilian stock market could not digest the news yesterday. Although version had run away a few days before the announcement late Monday by the Brazilian Finance Minister Guido Mantega the imposition of a capital income tax of 2%, caused sharp drop in the Bovespa that reached 2.88%. The fall in the Brazilian stock market reflects the change in the expectations of its evolution over the decline is expected, will mean the new tax on the volume of foreign capital entering the country. Tax on Financial Operations (IOF) as has been called, is non-tax revenue as was made clear from the government.

The reason is healthier and is limiting the volume of capital inflows that increase the risk on the country’s economic stability and promote appreciation, very negative for the Brazilian industry. This tax shall apply only to foreign capital for financial operations stock or time deposits, and was prepared jointly by members of Finance and Central Bank of Brazil. The joint development of the measure also shows the coordination and consensus in the design of economic policy in Brazil, a factor which undoubtedly gives consistency and strength. Strong capital inflows experienced by the Brazilian economy this year is clearly reflected in the stock market and the real quote. This situation, which was intended to generate satisfaction among Brazilians because it represents a clear external sign of the confidence generated by Brazil’s economy is a cause for concern about the risks of generating a bubble in asset values.