Brazil’s finance minister, Guido Mantega, should have been doing a victory dance around the IMF last weekend rather than threatening further capital controls, it seems.

According to the market, his government is actually winning the currency war. Brazil’s real was trading around 1.88 to the dollar on Monday– roughly its weakest level this year and almost 19 per cent weaker than its recent peak last July.

There was no sign of the central bank in the market on Monday either, which normally intervenes at least once a day to weaken the real by buying dollars.

So how did Mantega do it? Did the US, Europe and Japan finally realise the errors of their ways and reverse their monetary policy, thereby staunching the so-called tsunami of cheap money into Brazil? Or did those nasty ‘speculators’ throw in the towel and take up a more worthy profession?

No. The only thing that has really changed since last July is Brazil’s benchmark interest rate. Brazil’s central bank has hacked 350 basis points off the country’s so-called Selic rate since then, bringing it down from 12.5 per cent to 9 per cent last week.

Speculation that the government may tweak the rules on savings accounts could also give the central bank room to cut rates even further. By making those accounts less attractive to investors, they could stop them switching over from government bonds – one of thedownsides to pushing interest rates below their current levels.While Mantega’s onslaught of capital controls and higher transaction taxes over the past two years have succeeded in spooking the currency market (as well as keeping many tax lawyers in business), the effects on the real have been variable and generally short-lived.

Reducing the country’s interest rate, however, has proved to be the best weapon yet, taking chunks off investors’ returns in the bond markets and prompting them to move their money elsewhere.

But every war has its casualties and this one is no exception. For the average wealthy Brazilian, it’s those much-loved shopping trips in Miami, where iPads and Louis Vuitton bags will now be far more expensive.

For Brazil’s biggest companies with billions of debt in dollars, it means more worrying accounting losses and possible profit declines when they start reporting their first-quarter results this week.

But perhaps the biggest victim of all will be Brazil’s poor, who are set to suffer the most if inflation speeds up as a result of all the rate cuts.

This from Alberto Ramos, an economist at Goldman Sachs: The 2013 inflation outlook remains challenging—projected and expected inflation are currently in the 5.0%-5.5% range… While the authorities seem inclined to continue to push rates lower, current and expected inflation are still above the 4.5% target and the real business cycle, while still weak, is expected to recover to trend like rates of growth (perhaps even above trend) during 2H2012, driven by significant fiscal, quasi-fiscal and monetary stimulus.