Economy

Brazil central bank sells $1 billion in surprise FX swap auction

Brazil's cenbank said it sold all 20,000 foreign exchange swap contracts offered in a nonscheduled auction

Brazil's Central Bank. Photo: Agência Brasil
  • The sale had an immediate impact on the real, which reversed losses to trade up around 0.5% at 5.51 reais to the dollar;
  • The real is down by nearly a third against the U.S. dollar this year, with investors spooked by political risks, a fragile economic recovery and the prospect for rising interest rates in more wealthy economies.

Brazil‘s central bank sold $1 billion worth of currency swaps in a surprise auction on Wednesday afternoon, and said later it would hold another sale on Thursday, seeking to boost the local currency from nearly six-month lows.

The central bank said it sold all 20,000 foreign exchange swap contracts offered in a nonscheduled auction – double the volume offered in the bank’s previous surprise auction on Sept. 30.

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The sale had an immediate impact on the real, which reversed losses to trade up around 0.5% at 5.51 reais to the dollar.

Later on Wednesday, the bank said it would sell up to another $1 billion in a second nonscheduled auction, due to take place on Thursday morning.

The real is down by nearly a third against the U.S. dollar this year, with investors spooked by political risks, a fragile economic recovery and the prospect for rising interest rates in more wealthy economies.

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Last month, Brazil‘s central bank said it would hold additional twice-weekly auctions of traditional currency swaps, to address demand from banks dismantling their “over-hedge” positions in derivative markets.

Earlier on Wednesday, the central bank’s political economy director, Fabio Kanczuk, said there had been a smaller-than-expected market reaction to the bank’s announcement of those regular swap auctions.

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