Brazil’s central bank chief Gabriel Galipolo cheered the finance ministry’s decision to reverse part of its move to hike the IOF tax on some financial transactions before markets opened on Friday, saying it was “adequate”.
“We need to recognize the agility with which the ministry acted it the end,” Galipolo told an event hosted by think tank FGV, saying that the reaction of local markets reflected that.
Brazil’s currency weakened over 1% against the U.S. dollar (BRBY) in early Friday trading, but later pared nearly all losses amid global dollar weakness (.DXY.).
The Finance Ministry late on Thursday scrapped part of higher IOF tax on financial transactions it had announced earlier in the day, after critics both inside and outside the government blasted some of the measures as backsliding toward the return of capital controls.
It was clear to markets that the government’s goal with the IOF hike was to increase revenues to meet its fiscal target, Galipolo said, adding however that he personally disagreed with the move due to concerns about its potential impact on the foreign exchange rate and Brazil’s capital account.
The central bank head noted that the government had more challenges than the monetary authority to seek its goals due to the need for political negotiations.
In his remarks, the governor added that the central bank was at a moment of more caution and flexibility in its monetary policy, meaning the authority should not do sudden interest rate moves given the high level of uncertainty.
Earlier this month, the bank raised its benchmark interest rate to 14.75%, the highest in nearly 20 years, and dropped any forward guidance.