(Reuters) – Brazil’s former central bank chief Roberto Campos Neto said on Friday that part of the sharp depreciation of the country’s currency late last year was driven by companies acting ahead of a dividend tax they believed would take effect in 2025.
Speaking at an event hosted by XP Private Bank in Miami, he said the Brazilian real rebound this year was partly supported by consequences of that same movement.
After losing more than 20% in 2024, the currency of Latin America’s largest economy has surged nearly 8% year-to-date.
Appointed by former President Jair Bolsonaro to lead the central bank, Campos Neto left the post at the end of December and was succeeded by current Governor Gabriel Galipolo.
Under a 2021 law granting the monetary authority autonomy, he remained at the helm of the bank for half of current President Luiz Inacio Lula da Silva’s term.
Earlier this week, Lula unveiled a bill to tax all dividends sent abroad, whether to companies or individuals, as part of a compensation for a long-promised plan to exempt the middle class from paying income tax.
Campos Neto said many companies had anticipated sending money abroad for dividend payments, and that some banks were even facilitating these operations by lending money to firms so the funds could be transferred as dividends.
“But then, once you pay the dividends, when you send the money out, you don’t want to have the carry against you,” he said, referring to a situation where the interest rate differential between two currencies moves unfavorably for an investor.
Such carry trades involve borrowing in a low-yielding currency and investing in a higher-yielding currency to profit from the rate spread.
“So part of the money that was sent out in December had to go back in the future contract in January because you want the money out, but being out, you want to have the carry of the real. So I knew part of the money that was going to be sent out would reverse in January,” added Campos Neto.
(Reporting by Marcela Ayres; Editing by Marguerita Choy)
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