Brazil to Gauge Dollar Swap Demand as Libra May Fuel Real Rally

Brazil will evaluate demand for rolling over currency swaps that mature Nov. 1 as the auction today of a field holding the country’s biggest oil discovery may fuel a rally of the real.

The central bank will study today if there are market conditions for holding auctions on Oct. 22, 23 and 24 to roll over $8.9 billion in currency swaps aimed at supporting the currency, according to a statement posted on its website. Today the government will also sell the rights to explore the Libra offshore field and the winner will pay a 15 billion reais ($6.9 billion ) signing bonus.

“The flows from the Libra auction will affect the demand for the swap rollovers,” Pedro Tuesta, Latin America economist at 4cast Ltd. in New York, said in a phone interview. “Any foreign company involved may have to bring dollars from offshore.”

The real has gained more than any other currency in the world since the central bank announced on Aug. 22 a $60 billion intervention plan to defend the currency. While a stronger currency helps the central bank fight above-target inflation by reducing the cost of imports, it hurts Brazilian exporters.

The currency declined from a four-month high on Oct. 18 amid speculation the central bank won’t roll over all of the swaps maturing Nov. 1 as it seeks to contain short-term gains, according to Jose Carlos Amado, a foreign-exchange trader at Renascenca Corretora in Sao Paulo.

The real fell 0.8 percent to 2.1700 per dollar on Oct. 18, after reaching 2.1523 per dollar the day before, the highest level since June 14.

Real

Brazil’s currency weakened to a 4 1/2-year low in August, prompting the central bank to announce a program of offering currency swaps and dollar credit lines through the end of the year. The real has gained 12 percent since then, reducing its decline to 7 percent over the past 6 months.

The program of currency swaps and credit line auctions “has proved successful in curbing volatility” and could be extended beyond year-end as the U.S. Federal Reserve winds down monetary stimulus, central bank President Alexandre Tombini said in prepared remarks for an Oct. 12 speech during meetings of the International Monetary Fund in Washington.

Energy Minister Edison Lobao told reporters in Brasilia Oct. 19 that the government plans to hold the Libra auction today even if there is only one bidder.

State oil company Petroleo Brasileiro SA (PETR3) will not need the Treasury’s help to pay its part of the signing bonus for the Libra field, Finance Minister Guido Mantega told the daily Estado de S.Paulo yesterday. Petrobras will have a stake of at least 30 percent in the consortium that wins the Libra auction and will owe a corresponding portion of the signing bonus, said Mantega, who is also the oil company’s chairman.

To contact the reporters on this story: Blake Schmidt in Sao Paulo at bschmidt16@bloomberg.net; David Biller in Rio de Janeiro at dbiller1@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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