Brazil’s central bank nearly doubled the amount of swap contracts that it will offer to roll over on Friday, just hours after cautioning traders that the real has weakened more than justified.
The central bank will offer 11,000 foreign-exchange swap contracts in a rollover auction to extend maturities on Friday, according to a statement after the close of markets. That’s up from 6,000 contracts a day it had been offering this month.
The currency lost 1.4 percent to 3.5356 per dollar on Thursday, extending a monthly drop to 9.9 percent, the biggest decline among the 16 most-traded currencies. The real depreciated to a 12-year low after President Dilma Rousseff suffered a series of new setbacks in Congress that further erodes government efforts to shore up fiscal accounts. The selloff started July 22, when Finance Minister Joaquim Levy cut Brazil’s fiscal target.
“The current level of the exchange rate is way above what could be explained by the economic fundamentals of Brazil, even taking into account the delicate political situation,” Monetary Policy Director Aldo Mendes said Thursday, according to a statement read by his press office over the phone. “Buying currency at this level may pose a potential risk of loss in the medium term.”
Newspaper Valor Economico reported Mendes’s comments earlier on Thursday.