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No Time to Party for Brazil's Central Bank

Friday, 4 Mar 2011 | 2:23 PM ET

Brazilian policyma

Rio de Janeiro, Brazil
Andrew Holt | Photographer's Choice RF | Getty Images
Rio de Janeiro, Brazil

kers are trying to find the sweet spot for their monetary policy. For now, interest rate hikes are more likely than not. But the impact for currency traders is less certain.

When Brazil's central bank raised interest rate by half a point on Wednesday, it was responding to inflation over 6 percent.

That's why some experts expect another tightening in April.

But if rates go too high, that will push the value of the real even higher, hurting Brazilian industry. The real already rose 4.6% in 2010 as foreign investors were drawn to some of the highest interest rates in the world.

I asked Alberto Ramos, a senior economist at Goldman Sachs, for his opinion on the Brazilian tightrope walk.

"A wall of money is faced by a wall of intervention by the central bank," Ramos told me. Given current levels of growth and inflation, apartments in Sao Paolo are now more expensive than in Manhattan. But it's not all good, Ramos said. "Everybody loves a booming economy, but you should love it more if it's sustainable."

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