* Brazil resigned for now to real below 1.65/dlr level
* "Wait and see" attitude before any new capital controls
* Stance could change quickly if real appreciates further (Adds market movement, graf 4)
By Brian Winter
SAO PAULO, April 1 (Reuters) - Brazil will continue to be the land of the $6 Big Mac and the $65 filet mignon, as government officials see no good short-term options to weaken one of the world's most overvalued currencies.
Government sources told Reuters that President Dilma Rousseff will -- at least in the short term -- tolerate the real's rise to a 31-month high rather than try to fight it with major new capital controls, taxes or other measures.
"The attitude for now is to wait and see," said one of the officials, speaking like others on condition of anonymity. "We don't have any good options."
The real strengthened on Friday after the official's comments were published, firming 0.61 percent to about 1.62 per dollar.
The dilemma Rousseff faces illustrates how policymakers throughout the emerging market world may be running out of easy solutions to deal with their strong currencies. Brazil's robust economy and double-digit interest rates have made it an especially juicy target as investors from the developed world, where rates are extremely low, seek high yields elsewhere.
Rousseff's government had previously defended the real
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Scenario piece on possible forex measures: [ID:nN14145427]
Graphic on interest rates: http://r.reuters.com/rur78r
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Yet the real burst through that barrier this week. It is now up more than 2.5 percent this year, and 40 percent since 2009.
The real's rise hurts some local manufacturers, a major Rousseff constituency. But her economic team has decided to hold off for now on any major new intervention measures, believing that a slightly stronger currency could help act as a brake on rising inflation and ease the threat from higher global oil prices, the officials said.
Officials are also worried that any of the potential capital controls still at their disposal would carry negative side effects by curtailing productive investment from abroad.
One official compared the measures still available to choosing a stronger set of chemotherapy drugs to deal with cancer. "You have to be careful," the official said.
Rousseff could shift strategy quickly and implement severe new controls if the real continues to strengthen, the officials warned. They also said the central bank would continue its regular interventions in the currency market to limit the real's rise as much as possible.
OIL PRICES A BIG CONCERN
The officials declined to specify what the new unofficial threshold for the real is. But their comments amount to a decision to retrench just above the 1.60-per-dollar level as the torrent of speculative and long-term capital flowing into Brazil shows no sign of abating soon.
Recent measures aimed at curtailing the inflows have had diminished results. Brazil on Tuesday raised a tax on foreign borrowing for loans of up to 360 days, but the effect on the foreign exchange market was practically nil. [ID:nN29248075]
"That was a disappointment," one official said.
The strength of the real, which Goldman Sachs has called the world's most overvalued major currency, is a product of factors both beyond and within Brazil's control.
Global trends such as the weak U.S. dollar and the availability of cheap money in the developed world have caused problems for many emerging economies. Yet Brazil's heavy government spending and 11.75 percent benchmark interest rate have made the situation worse.
One of the triggers for this week's currency rally was a report by the central bank, which stated that inflation would likely rise to near the top of its target range this year. Markets took that as a sign of weakness, betting that authorities would have to let the real rise or resort to interest rate increases in months ahead to control prices.
That bet looks to be right, so far.
Officials said they are particularly worried that continued
high global oil prices could eventually trickle down to
Brazilian consumers. State-run oil company Petrobras
Another possible factor in the government's thinking: Brazilian industrial output posted an unexpected sharp rise in February, according to new data published Friday, meaning that the strong currency's effect on the sector may not be as corrosive as previously believed. [ID:nN01126425] ( Editing by Todd Benson, W Simon and Dan Grebler)