Brazil will raise a tax on personal credit, its finance minister said on Thursday, in a bid to brake inflation that has edged dangerously close to a government ceiling. The government will double the so-called IOF tax on personal credit to 3 percent as of Friday to stem a steep increase in demand, Finance Minister Guido Mantega said.
"We are taking the measures to moderate the rise in consumer credit," Mantega told a news conference in Sao Paulo. "It will help us bring inflation to an adequate level." The tax was temporary and the government could take additional steps to curb inflation if needed, he added. Analysts said the measure could help dampen credit demand but was too small to have a significant impact on slowing demand and inflation.
The government's decision to use alternative measures to complement monetary policy could signal it was trying to avoid a further hike in interest rates, some economists said. "(It's) bad for managing expectations, for really convincing investors, analysts and society that the government will do all that is necessary to control inflation," said Roberto Padovani, chief Brazil strategist at WestLB in Sao Paulo.