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Carnival is finally over and it's time to get back to work for many bleary-eyed Brazilians. For Guido Mantega, the country's finance minister, that means plotting the next move in his beloved currency war.
The Brazilian real broke the closely watched level of 1.65 per dollar last week, prompting speculation that new measures could be announced as early as today to curb the currency's appreciation.
For a country that complains so loudly about foreign exchange manipulation, Brazil has already introduced an impressive array of intervention measures itself: dollar purchases on the spot market, forward and reverse currency swap auctions, a tax on foreign purchases of local stocks and bonds, another tax on derivatives margins and reserve requirements on banks' foreign exchange positions.
But there are still some options left:
But whatever the government and/or the central bank decides to do, the result will inevitably be the same. After a knee-jerk reaction, a little chaos and lots of grumbling, investors will return to the market. As long as Brazil keeps raising interest rates, giving foreigners some of the biggest returns in the world for relatively little risk, Mantega is fighting a losing battle.
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