It seems that Brazil is finally winning its currency war.

The Brazilian real on Wednesday touched its weakest point against the dollar since July 2009, hitting R$1.9649 against the greenback in morning trade. That makes a 4 per cent drop over the previous month, making the real the worst performing of any currency tracked by Bloomberg. It has weakened 21 per cent from a 12-year high reached last July.

Brazil cannot claim to be solely responsible for the drop in the real. Global risk appetite has turned against emerging markets amid political turmoil over the European sovereign debt crisis. Commodities prices have softened from their highs in line with decelerating Chinese growth.

Yet, Brazil has done its part. The original currency warrior was Guido Mantega, Brazil’s finance minister, who fought the lonely fight during the boom years of 2010 and 2011 when the real seemed set to forever rise on the back of soaring prices for Brazilian iron ore, soy and other commodities.

This year, president Dilma Rousseff took up the battle, frustrated by a sudden slowdown in Brazil’s economic growth wrought by the devastating impact of the stronger real on the competitiveness of Brazilian industry. She personally complained to Angela Merkel of Germany and Barack Obama of the US about a “tsunami” of hot money flooding into Brazil as a result of loose monetary policy in advanced economies.

She coupled this effort with an “interest rate war” directed at Brazil’s exorbitant lending rates. She attacked Brazil’s banks for over-charging (the average consumer lending rate in Brazil remains 44 per cent) and cut the guaranteed return on popular savings accounts.

Meanwhile, the central bank did its bit by slashing its benchmark Selic rate, still among the highest of any large economy, by 350 basis points to 9 per cent. It is poised to cut further to near all-time lows later this month.

But is the government merely playing with the controls of the Brazilian supertanker when the problems lie in the engine room? Many economists think so. Manipulating exchange and interest rates will only yield long-term results if the underlying fundamentals are supportive.

While most economists agree this is a good time to lower interest rates, the measures taken so far will not cure the Brazilian economy’s fundamental inflationary tendencies. Whenever the economy returns to above trend growth, the country’s low investment rate, lack of competitiveness in industry and big and wasteful government will help ensure a resurgence of inflation.

Indeed, the present measures seem to only be succeeding in driving away investors. Brazilian equities are at a five-year low investors are pulling money from its mutual funds, as Bloomberg reports.

To cement its victory in this phase of the currency war, Brazil’s government must convince Congress of the need to start a genuine discussion on a second generation of reforms. Wars are won by leadership, not cosmetics.