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Trouble in Brazil or More Good Times Ahead?

Today, the Brazil's central bank is likely to raise its key interest rate, the SELIC as discussed in the January newsletter. Analysts estimate a 50 basis point hike. If this occurs, it will place short-term rates at 11.25%. The global inflation trend is driving this decision, as food and energy costs have hit Brazilian consumers particularly hard over the past several months. 
On the other hand, raising rates threatens to create another inflationary force through the carry trade as foreign banks and other institutions flood even more capital into the nation to take advantage of these rates. The problem is that foreign capital has been responsible for artificially inflating the Real. As you can imagine, this has not hurt Brazil's very important export trade. 

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