The Brazilian Bovespa index lost close to 3% in its first full trading session after the introduction of the 2% tax on portfolio inflows of equities and fixed income. The BRL depreciated from 1.71 to 1.75. A tax on inflows should take some of the speculative edge off of the currency market, but it is unlikely that this will be enough to reverse the currency direction. The cost will be borne by those that need capital. This may affect growth in the longer-run.
Watch for other countries to try similar policies. Mercantilist policies will not take the form of trade product protectionism but through the manipulation of the capital account.
Watch for other countries to try similar policies. Mercantilist policies will not take the form of trade product protectionism but through the manipulation of the capital account.
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