Brazil will reduce gasoline taxes for three months to keep prices stable after refineries cut the percentage of ethanol in the fuel because of falling stockpiles.
The federal government will lower the so-called CIDE tax on gasoline to 15 centavos per liter from 23 centavos starting Feb. 5, Finance Minister Guido Mantega said today. The reduction will last through April 30 and will lower government revenue by 90 million reais ($48.6 million), Mantega said.
The measure may help keep a lid on inflation, which economists surveyed by the central bank forecast will quicken to 4.62 percent by year end, above the bank’s 4.5 percent target. Economists predict central bank policy makers will need to start raising interest rates as early as April to keep inflation in line with targets, according to the median forecast in the same survey taken Jan. 29.
“Our goal is to keep gasoline prices stable,” Mantega told reporters in Brasilia.
Brazil cut the mandatory amount of ethanol mixed into gasoline to 20 percent from 25 percent on Feb. 1 after stocks of the biofuel fell. Mantega said the government was concerned that the change in the fuel mixture would prompt gasoline stations to raise prices.
Mantega said that the supply of ethanol will rise by the end of April when farmers harvest their sugar cane crops, which will allow the government to restore the tax to previous levels.
Rafael Yamano, an economist with Banco Fator SA in Sao Paulo, said the tax measure wouldn’t have any effect on the central bank’s decision on interest rates.
source: bloomberg
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