- The escudo has now joined sterling in the European exchange rate mechanism.
- Last year a bonanza of foreign capital attracted by interest rates of more than 18 p.c. poured 6 billion into Portugal, equivalent to 8 p.c. of gross domestic product, and forced the country to slam on the brakes and restrict foreign purchases of escudo investments.
- THE sudden popularity of the Portuguese escudo, which rose from obscurity to a position of strength inside the European exchange rate mechanism after it joined a week ago, could lead to the removal of restrictions on foreign investment earlier than planned.
- Until the pound perked up yesterday, the Exchange rate mechanism had asserted itself yet again as an Evil Restrictive Morass after Portugal's escudo leapt in with both feet on Monday.
- City: Entry of the escudo depresses the pound
- Its shares shot up 10 p.c last week and the company, Portugal's largest quoted stock, is hoping to ride the tide of interest in the escudo when it launches a sale of shares and convertible bonds later this month to raise 300m of new capital.
- The Portuguese escudo joined the European exchange rate mechanism on Friday and yesterday shot to pole position, hitting the top of its 6 p.c. band, and heaping pressure on the pound which remains the weak man of Euro currencies.
- Prime Minister Anibal Cavaco Silva said yesterday the escudo would join in a 6 p.c. band at a central rate of 180 to the ecu.
- Turbulence in the Exchange Rate Mechanism led to the suspension of sterling, a 7% devaluation in the Italian lira - also still suspended - a 5% devaluation of the Spanish peseta, and pressure on the French franc, Spanish peseta, Irish punt and Portuguese escudo.
- Sterling is even closer to its intervention level against the peseta than the escudo and market rumours of a lira devaluation mean that the Italians, the Portuguese and the Spanish pose a more immediate threat to the pound than the identity of the next British Chancellor.
- Even though both currencies are allowed to fluctuate within the wide 6 p.c. bands not available to other monetary units, the escudo shot right to the ceiling of its band - pushing sterling close to its floor.
- Analysts believe that the central bank, which cut interest rates by 1 percentage point last week in an attempt to stem the rise of the escudo, may be prepared to remove its barriers over the next few weeks if rate cuts staunch the flow of hot money into Lisbon.
- Because that country has high interest rates to combat inflation, the escudo shot like a scud missile to the top of its variation bands in the mechanism, putting further pressure on sterling until yesterday.