RIO DE JANEIRO, Brazil (AP) -- The Brazilian currency swung wildly Tuesday, as markets waited for a government intervention that never came.
Brazil's currency initially nosedived Tuesday, as traders pushed the Central Bank to sell dollars. The real tumbled to 1.96 to the dollar from 1.79 on Monday, before closing at 1.82.Currency dealers said the real plummeted because buyers wanted to discover at what point the government would step in and sell dollars to prop it up.
Last week, the Central Bank said it would allow the real to float against the dollar but might intervene to avert sudden changes, a system economists call a "dirty float."
On Friday, the government did just that, selling dollars through the federally run Banco do Brasil to halt a free fall. But there was no sign of intervention on Tuesday.
"There definitely are people forcing the Central Bank's hand," said one Rio de Janeiro trader speaking on condition of anonymity.
Late in the day, several banks sold dollars when the rate was around 1.90 and the real bounced back up. But dealers say banks are almost out of dollars, which raises the demand and the pressure on the Central Bank to sell.
Brazil stopped spending its dollar reserves to support the real after losing more than $45 billion since August, as panicky investors bailed out of Latin America's largest economy.
But dollars continue flowing out, despite a 38 percent devaluation of the real since Jan. 12.
Central Bank President Francisco Lopes said $8 billion has left the country this month and that reserves stand at about $36 billion, including $9 billion from a $41.5 billion aid package from international lenders.
At his confirmation hearing at the Senate, Lopes said that Brazil must raise money abroad this year or reserves will fall to $24 billion in 12 months.
Lopes called the current market jitters "exaggerated" and said the initial plunge of the real isn't something to worry about. He said there was no chance Brazil would restrict the outflow of dollars because foreign credit and investment would vanish.
"Currency controls would mean that Brazil would be abandoning the possibility of becoming a first-class nation," Lopes said. "Currency controls are a non-solution ... and inevitably lead a country to moratorium."
Still, the abrupt plunge of the real has raised fears of renewed inflation, for decades the scourge of Brazil's economy. The strong real, introduced in 1994, cut inflation from 2,700 percent to less than 2 percent.
The government hopes to curb inflation by keeping credit tight, so merchants will have to cut prices to attract customers. The Central Bank now charges 32.5 percent interest on loans to banks.
But high interest rates also raise the government's public deficit and a domestic debt that tops 350 billion reals, now worth about $180 billion.
Still, the weaker real was good news for local stock markets, as foreign investors went fishing for bargains. The Sao Paulo Stock Exchange, Latin America's largest, closed up 6.3 percent from Monday's close.