Brazil's former central bank chief Roberto Campos Neto stated that part of the sharp depreciation of the country's currency late last year was driven by companies preparing for a dividend tax anticipated to take effect in 2025.
During an event hosted by XP Private Bank in Miami, he noted that the Brazilian real's rebound this year was partly a consequence 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, Campos Neto left his position at the end of December, succeeded by current Governor Gabriel Galipolo. Under a 2021 law that granted the monetary authority autonomy, he served at the bank for half of President Luiz Inacio Lula da Silva's term.
Earlier this week, Lula proposed a bill to tax all dividends sent abroad, whether to companies or individuals, as part of a long-promised plan to exempt the middle class from paying income tax. Campos Neto explained that many companies had anticipated sending money abroad for dividend payments, with some banks facilitating these operations by lending money to firms to enable the transfer of funds as dividends.
He remarked that after paying out dividends, companies preferred not to incur a carry against them, 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.
Campos Neto added that part of the money sent out in December needed to return through future contracts in January, as companies aimed to benefit from the favorable carry of the real while having funds abroad. He anticipated that some of the money destined for overseas dividends would reverse in January.