Brazil Limits Rollover of Currency Swap Contracts as Real Surges

Brazil’s central bank will roll over no more than about one-third of currency swap contracts maturing next month as it scales back efforts to sustain the real that has posted the world’s biggest rally since August.

The central bank this afternoon will auction as many as 20,000 foreign exchange swaps worth a total $1 billion, the central bank said in a statement yesterday e-mailed by its press office. The bank this week already sold a combined 40,000 swaps for a total $1.98 billion in the first two of three potential auctions it can hold to roll over $8.9 billion in swaps that mature Nov. 1.

Rolling over just one-third of the swaps would be the equivalent of removing about $5.9 billion of U.S. dollars from the market. The decision gives the bank the flexibility to keep in place a separate $60 billion currency intervention program of currency swaps and credit lines, according to Jankiel Santos, chief economist at Banco Espirito Santo de Investimento.

“The Brazilian central bank is saying that the program is there, and it is going to keep supplying all the contracts promised,” he said by phone about the $60 billion intervention. “They pretty much did what we were advocating, which is to keep with the original program.”

Finance Minister Guido Mantega told reporters last month the central bank might curtail the intervention program.

The real has appreciated 11 percent since Aug. 22, when the central bank announced the measure that consists of currency swap auctions worth $500 million daily from Monday to Thursday and credit line auctions of $1 billion on Fridays. That’s the biggest increase among global currencies tracked by Bloomberg.

The real weakened 0.8 percent to 2.1905 per dollar yesterday, after reaching 2.1523 on Oct. 17, its strongest level since June 14.

To contact the reporter on this story: 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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