Reuters: US Dollar Report: UPDATE 1-Brazil scraps IOF tax on foreign inflows to local bonds

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UPDATE 1-Brazil scraps IOF tax on foreign inflows to local bonds Jun 4th 2013, 23:10 Tue Jun 4, 2013 7:10pm EDT BRASILIA, June 4 (Reuters) - Brazil will scrap a tax on inflows of investment capital destined for the purchase of fixed income assets like bonds, due to an expected reduction in international liquidity, said Finance Minister Guido Mantega late on Tuesday. "We have observed a reduction in the international liquidity coming to Brazil ... we are removing the obstacles for the entry of capital to Brazil for fixed income assets," Mantega told reporters in Brasilia. The removal of the 6 percent tax, effective Wednesday, takes away a key defence Brazil had put up to prevent its currency strengthening further in recent years as comparatively high yields on its assets drew cheap capital borrowed abroad to its financial markets. Brazil's currency and those of other emerging market countries weakened last week on expectations that loose monetary policies in the United States would soon come to an end as its economy shows signs of recovery. The move could also counter criticism by foreign investors over President Dilma Rousseff's frequent interventions in the private sector as she attempts to jump-start economic recovery. "This indicates there could be a reduction in liquidity in international markets. This will be positive for the global market," Mantega said. "(We) are comfortable about reducing the IOF, making this market normalized and self-adjusting."

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