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Brazil's Policy Moves Look 'Real' Good

Thursday, 1 Dec 2011 | 12:32 PM ET
Brazil
Chad Ehlers | Stone | Getty Images
Brazil

Cuts in taxes for foreign investors will lift the Brazilian currency, this strategist says.

One thing you can say about Brazil's latest policy moves: the Dilma government isn't afraid to go big. In maintaining its pace of interest-rate cuts - as expected - and cutting taxes on some foreign currency purchases - more of a surprise - Brazil is clearly gunning for growth.

That said, the degree of the changes is a little stunning.

"If it were a child we would call it hyperactive; if it were a patient we would diagnose it with bipolar disorder; if it were a trader we would fire it for overtrading; but it’s Brazil, so we just have to learn to live with it," says Ilan Solot, an emerging markets strategist at Brown Brothers Harriman.

Solot adds that "for now, the measures are unambiguously positive for the Brazilian real," and notes that even with some further interest rate cuts - the consensus is that Brazil will reach a level around 10% - rates will remain alluring.

Events in Europe could overshadow even the most aggressive domestic policy changes in Brazil, Solot says. But for the short term, the Brazilian currency could be a 'real' deal.

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