Brazil Real Breaks Through Band; Central Bank Intervenes to Support Real
Brazil Real Breaks Through Band; Bank Intervenes (Update2)
(Updates with exchange houses suspending business)
Sao Paulo, Jan. 13 (Bloomberg) -- The Brazilian currency
soared above a new trading band imposed by the central bank,
forcing the bank to intervene after Brazil moved to accelerate
the pace of devaluation.
In the currency spot market, the real weakened 8.8 percent
to 1.3285 reais to the dollar, from yesterday's 1.2108. The
central bank sold dollars to stabilize the currency, which
plunged just 7.1 percent for all of 1998, traders said.
Exchange houses around Brazil suspended business for several
hours, waiting for the market to settle -- the first time this
has happened since the Russian debt moratorium last August.
One exchange house in Sao Paulo, the country's commercial
hub, said it had been forced to turn away about 50 clients. A
spokesman said he expected to sell dollars later today at around
1.40 reais compared with 1.27 reais last night.
The central bank adjusted the ceiling of its trading band to
1.32 reais today, from 1.22 reais. The bank also removed an inner
trading band, allowing for a freer float of the currency.
Central bank president Gustavo Franco resigned, paving the
way for a faster devaluation of the currency, adding to the
nervousness in Brazilian markets. The devaluation and the
resignation sent stocks and bonds reeling in Europe as well.
Brazil is trying to stem capital flight, which has pushed
international currency reserves down to about $35 billion, from
$75 billion in August.
The rate on one-day certificates of deposit for March
delivery, the most actively traded interest rate futures contract
on Sao Paulo's BM&F commodities and futures exchange, jumped more
than 12 percentage points to 52.38 percent from 38.89 percent
yesterday.
''The market is nervous and we don't know exactly what is
going on with the real,'' said Alexandre Horstman, a money market
trader at Banco Marka SA in Rio de Janeiro.
The contract reflects interest rate expectations for March.
Brazil said the new policy, which removes a narrow band in
which the currency trades, will result in a devaluation of as
much as 15 percent this year, double last year's rate.
Brazil today made its annual shift in the trading band in
which the real trades, expanding the spread between the top and
bottom of 10 percent, from 8.9 percent.
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