Brazilian Finance Minister Guido Mantega said dollar inflows into the country have returned to a “reasonable” level, after the government took steps to stem a flood of foreign money. “In March, we had a torrent of dollars,” Mantega said in an interview yesterday with Globo News television. “We took tough measures, the IOF tax, and we succeeded in stemming the flow. In May it returned to a reasonable level.” The real has weakened 2.5 percent this month, to 1.6156 per U.S. dollar, the third-worst performance among seven Latin American currencies tracked by Bloomberg after the Chilean and Colombian pesos. Mantega last year accused rich nations of provoking a “global currency war” by keeping interest rates at near-zero levels. Brazilian President DilmaRousseff’s administration on March 29 increased to 6 percent a tax on new corporate loans and debt sales abroad by banks. A few days later, Rousseff applied the higher tax to renewed, renegotiated, or transferred loans of up to two years in length. Companies previously paid a 5.38 percent tax on loans up to 90 days and zero tax when the operation exceeded three months. In October, Mantega tripled to 6 percent a tax on foreign investors’ fixed-income purchases. Inflation, Cool the Economy Brazilian inflation is being stoked by the country’s tight labor market, and the service sector, Mantega said. Emerging markets with heated economies, such as Brazil, India and China, risk inflation from commodity price inflation spreading to other areas, Mantega said. Annual consumer price inflation breached the upper limit of its target range in April, accelerating to 6.51 percent, the fastest pace since 2005. Central bank President Alexandre Tombini raised the benchmark Selic by 25 basis points to 12 percent on April 20 after 50 basis-point increases in January and March. The central bank targets inflation of 4.5 percent, plus or minus two percentage points. Brazil is trying to cool the economy, without slowing growth too much, Mantega said. “We want to throw water on the fire, without putting it out,” Mantega said. “We want the economy to keep growing.” Brazil added 272,225 registered jobs in April, the second- fastest pace in almost a year, the Labor Ministry reported yesterday. Brazil’s unemployment rate reached a record low of 5.7 percent in December before rising to 6.5 percent in March, the lowest ever for that month. The economy is near full employment, Rousseff said last month. The country’s high interest rate is necessary for the time being, though could fall in the future, Mantega said. Brazil will seek to cut to payroll taxes that firms pay, to help businesses remain competitive, Mantega said. The government also wishes to cut state sales taxes, Mantega added. The Finance Ministry will propose the cuts by June, he said. The yield on the interest rate futures contract maturing in January 2013, fell 2 basis points, or 0.02 percentage point, to 12.47 percent yesterday. To contact the reporters on this story: Matthew Bristow in Brasilia at mbristow5@bloomberg.net To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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