Dilma Rousseff has been banging the war drums over the flood of cheap money from developed markets in her trip to the US: the reverberations have already reached the ears of Finance Minister Guido Mantega. He seemed to float the idea of more macroprudential measures. Investors reacted, as they always do, by pulling out money and that has sent the real down once again, by nearly 1% yesterday.
The government has tinkered with capital controls this year but has not resorted to the extreme measures seen under former president Lula, which included taxes on long-term investments including private equity. The weapons used so far under Rousseff have been less blunt and dominated by intervention in the spot and futures market. Even so, the Ministry of Finance is keeping investors jumpy by not signalling its intentions. This is likely to be a deliberate strategy to cool the heels of short-term investors.
Despite Central Bank president Alexandre Tombini's reassurances that he will leave the Selic rate at 9%, a number of money managers are confident that rates will fall further. One of Brazil's top asset managers, Alexandre De Zagottis CEO at Advis Investimentos, told me he thinks that futures markets could be wrong in pricing in a leap in short rates at the start of next year. He argues: “It is hard to imagine rates increasing as rapidly as futures suggest, and if the external scenario worsens, rates may even come down”.
I'll be writing more about these issue for Absolute Return-Alpha magazine.