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Currency wars continue, Brazil's finance minister warns

Section: Daily Dispatches

By Chris Giles and John Paul Rathbone
Financial Times, London
Wednesday, July 5, 2011

Brazil is preparing a range of additional measures to stem the damaging rise of the real as the global currency war shows no signs of ending, according to Guido Mantega, the country's finance minister.

Speaking to the Financial Times in London, Mr Mantega said the Group of 20 leading economies was still a long way from achieving its goal of agreeing new guidelines for managing currencies, there were "struggles between countries" such as the US and China, and the global currency war was "absolutely not over."

Slow growth and low interest rates in advanced economies continued to put upward pressure on Brazil's currency, Mr Mantega said, forcing the authorities to consider further intervention in currency and derivatives markets to limit overshooting.

... Dispatch continues below ...


Lewis E. Lehrman on How to Solve the U.S. Debt Problem

Lewis E. Lehrman, chairman of the Lehrman Institute, sponsor of The Gold Standard Now project, advises that to reduce the $1 1/2 trillion U.S. deficit, the Republican Party must initiate an investment program.

Working Americans are not saving, which enables the banks to lead the country into a cycle of debt, leverage, boom, panic, and bust.

Lehrman says: "Eliminating the budget deficit of a trillion and a half dollars cannot be done overnight. The proposal by U.S. Rep. Paul Ryan was very dramatic -- one Republican called it radical -- but it was not happily received. The solution, of course, is to design an American program for prosperity, because you can solve these entitlement problems with a growing economy. We need a tremendous program of investment, and investment comes from savings. When you pay savers, middle-income professionals, and working people 0 percent at the bank, you are not going to encourage them to save. Then we are left with a bank cycle of debt, leverage, boom, panic, and bust."

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"We always have new measures to take," he told the FT, indicating on the sidelines of an investor conference that these would not be pre-announced but would include market intervention. On Tuesday the Brazilian central bank also announced a spot auction to buy US dollars in another move to boost foreign exchange reserves and stem the upward pressure on the real.

The Brazilian currency has been close to 12-year highs against the dollar in recent weeks, but fell by 0.7 per cent on Tuesday.

Brazil's actions to limit currency appreciation highlight the dilemma faced by many fast-growing economies -- including Turkey, Chile, Colombia, and Russia -- since allowing currency appreciation limits domestic overheating, but also undermines the competitiveness of domestic industry.

"I gave a speech to investors and I hope they did not receive it too enthusiastically," Mr Mantega joked, "because there is a tendency for too much capital to enter."

Brazil had to take other actions, he added, because domestic interest rates were already high, so as to curb inflation, and further rate rises alone tended to encourage further capital inflows. Brazil has already instituted a number of measures, including taxing bond portfolio inflows, to try and curb the real's appreciation.

"Monetary policy is very tight in Brazil and the level [of interest rates] in real terms is higher than in other [emerging] countries," Mr Mantega insisted.

With the main policy rate at 12.25 per cent, he rejected the notion that Brazil was overheating, saying the economic growth rates were sustainable, inflation was falling, and the fiscal deficit was coming down. The economy is forecast to grow by 4 per cent this year after expanding 7.5 per cent in 2010.

Credit growth -- at 15 per cent this year -- was lower than the 22 per cent rate in 2010, he added, partly as a result of government restrictions on banks borrowing cheaply at low interest rates from the US, but he looked forward to the day when lower inflation allowed "monetary policy more flexibility."

Mr Mantega's comments highlight the low-level currency war between emerging and advanced economies that has unsettled global financial markets. This will be one of the issues facing Christine Lagarde, who started work as managing director of the International Monetary Fund on Tuesday.

Brazil supported the new French managing director over her Mexican rival, Agustín Carstens, but Mr Mantega insisted there was no "regional rivalry" between Latin America's two biggest economies. Mr Mantega said he felt Ms Lagarde would be more effective at advancing the cause of developing nations.

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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit: