Brazilian real sinks further

AS BRAZIL started to run out of dollars, the currency plunged by as much as 7 per cent to 1.96 reals to the dollar yesterday. Although it later recovered to close at 1.83 to the dollar, it has lost more than a third of its value against the US currency since the devaluation on 13 January, writes Diane Coyle.

Capital flows out of the country have passed the $7.5bn mark this month. But in Washington and Brazil politicians talked up prospects of economic reform.

Robert Rubin, the US Treasury Secretary, said it was important for Brazil to stick to planned reforms. Francisco Lopes, the governor of Brazil's central bank for the past two weeks, said inflation would not be allowed to run out of control even though the nosedive in the currency would send import prices higher.

However, Fitch IBCA, the ratings agency, cut its long-term ratings for Brazil to B, from B-plus for foreign currency debt. The Bovespa index nevertheless jumped over 6 per cent yesterday.