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Real floating free of band
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January 15, 1999: 11:17 a.m. ET
Brazilian currency crashes through new trading limits, then lifts slightly
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NEW YORK (CNNfn) - Brazil gave up defending its currency Friday, bowing to overwhelming pressure as nervous markets hoped the move might avert all-out crisis in the world's eighth biggest economy.
The real plunged immediately to a low of 1.55 to the dollar before clawing back to 1.50, a 12-percent devaluation from Thursday's close of 1.32.
Brazil had attempted to stage a controlled devaluation Wednesday when it expanded its trading bands, allowing the real to fall more than 8 percent against the dollar.
However, massive currency outflows -- nearly $3 billion since Wednesday -- thwarted the Central Bank's attempts to enforce the band through selling its already-dwindling dollar supply.
Since closing Tuesday, the real has lost 18.7 percent of its value, while Brazil's currency reserves have dipped to $40 billion.
"The Central Bank had to do this because it had no other way to manage the currency," said Jaime Alves, an economist at Banco Parente in Sao Paulo.
Having dreaded a scenario in which Brazil drained its remaining reserves and then was forced to let the real float anyway, the investment community greeted the announcement with profound relief. Blue-chip stocks in Sao Paulo soared 27 percent.
In a statement, the Central Bank said it won't intervene in the currency markets, allowing the real to trade freely against the dollar. The bank added it would set new exchange rules on Monday but did not go into details.
Meanwhile, Finance Minister Pedro Malan and Central Bank President Francisco Lopes are set to travel to the United States in an effort to secure support from the U.S. government and the International Monetary Fund.
"It's one thing to try and do something like this on your own. It's different when you do it with support," said a government official, who asked not to be named.
Depending on the outcome of the talks, Brazil might try to defend its currency again next week, the official said.
However, economists diverged on the possibility -- and advisability -- of renewed intervention.
"I think that the Central Bank may intervene at a certain level that it thinks is good for the real and not let it explode. Maybe at 1.60," Alves of Banco Parente said.
Another economist, Constantin Jancso at MCM consultants in Sao Paulo, said the Central Bank's attempts to set trading limits for the real had "lost all credibility"
"Everything is possible at this stage," Jancso said.
Brazil introduced the real in 1994, after decades of soaring inflation, and the currency has served as the anchor of Brazil's economic recovery since then.
The country averted a near-devaluation last September after being buffeted by financial storms from Russia's economic collapse and swirling crises in Asia.
But the pressure became unbearable this month after former President Itamar Franco, now governor of the state of Minas Gerais, declared a moratorium on the state's debt to the federal government. 
-- from staff and wire reports
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