* Finance Minister says ready to act to keep lid on real
* Mantega says may ramp up short-term capital controls
* Tensions resurface over new U.S. monetary stimulus
* Brazil has taxed some foreign inflows since 2009
By Ana Nicolaci da Costa and Sujata Rao
LONDON, Sept 21 Brazil threatened on Friday a
further clampdown on speculative foreign capital, firing a
warning shot in a "currency war" its finance minister blamed on
money-printing by Western central banks.
Finance Minister Guido Mantega said Brazil would not allow
its currency, the real, to strengthen as a result of
aggressive monetary stimulus by the United States and other
"If necessary ... we have (the option) of short-term capital
taxes," he told reporters on the sidelines of an Economist
conference in London.
Mantega's comments reflect growing tension between the South
American nation and the United States over its lax monetary
policy, which Brazilian officials blame for an avalanche of
cheap imports crippling local producers.
Since 2009, the Brazilian government has introduced a number
of measures intended to curb excess inflows of foreign
investors' dollars but recently reduced their scope after the
Brazil shocked investors in October of that year by taxing
some categories of foreign capital flowing into stocks and
bonds. It said at the time that some of the flows constituted
hot money and were harming the economy.
Brazil has also raised duties on dozens of foreign-made
goods to help a local industry struggling with a stronger real
as well as some of the world's highest input costs.
U.S. Trade Representative Ron Kirk's calls for Brazil to
reconsider plans for more tariff increases prompted a stinging
response from Brasilia on Thursday. In a letter, the Brazilian
government said the hike was a legitimate tool unlike the
"illegal subsidization of farm products by the United States,
which impact Brazil and other developing countries."
Mantega has become one of the fiercest critics of the asset
buying programmes that Western central banks have been using to
shore up their economies, accusing them of in effect devaluing
their currencies to boost competitiveness.
The real held steady around 2.0245 per dollar for the fourth
consecutive session on Friday following Mantega's threats to
ramp up capital controls. His remarks added to the perception
that the central bank will keep intervening if the real nears
the level of 2 per dollar.
Some of the extra funds generated by quantitative easing
(QE) have in the past found their way into emerging markets,
lured by higher interest rates and yields, driving gains in
currencies including the real and Indonesia's rupiah.
Mantega said the U.S. Federal Reserve's decision this month
to embark on a third round of bond-buying, followed by a similar
move by Japan, would revive global "currency wars" by forcing
other countries to act to protect their own economies.
"(The United States and Japan) will be stimulating the
currency wars as (they) will lead all countries also to pursue
these wars," Mantega said. "It's natural other countries will
BRAZIL CENTRAL BANK INTERVENTIONS
Brazil's central bank has also intervened heavily in
currency markets to hold the real near the 2-per-dollar level
via billions of dollars in reverse swaps. It has also cut
interest rates to a record low of 7.5 percent.
Mantega told the conference there would be no let up in this
"The central bank will buy more reserves, we already have a
very high level of reserves and we will purchase more if there
is a strong offer of dollars in the Brazilian economy," he said.
"We will do more reverse-swapping ... we won't allow our
economy to become uncompetitive."
The Brazilian economy - the world's sixth largest according
to International Monetary Fund data - has been virtually flat
since expanding 7.5 percent in 2010.
Economists expect the economy to grow only 1.5 percent this
year, despite a series of rate cuts and tax breaks, and below
the government's 2 percent forecast.
Mantega predicted growth would pick up again to around 4
percent to 4.5 percent on an annualized basis in 2013 in
response to the lowered borrowing costs and stimulus measures
the government has put in place.
Analysts are split over whether the central bank will hold
or cut rates next time it meets on Oct. 10, with the latest data
showing a rise in inflation on higher food prices.
Mantega said the central bank has room for further rate