Itaú BBA - Central bank accelerates the FX swaps rollover pace

FX and Capital Markets

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Central bank accelerates the FX swaps rollover pace

August 10, 2015

Another week of depreciation for the local currency and the central bank accelerated the pace of FX swap rollovers.

(full report attached)

Another week of depreciation for the local currency

Politic and economic uncertainties in Brazil, along with the international scenario, put pressure on thereal for another week. The exchange rate topped 3.55 per U.S. dollar, but ended the week at 3.51, weakening 2.5% and underperforming its peers (Charts 1, 2, 3 and 4).

The central bank accelerated the pace of FX swap rollovers

The monetary authority started to roll over the $10.0 billion in swap contracts expiring in September at a pace of 6,000 contracts per day. Late in the week, however, the central bank accelerated the pace to 11,000 contracts per day, meaning the rollover of 100% of the total batch (from 60% announced previously) (Charts 5 and 6).

Currency flow was negative in July

The currency flow was negative in the last week of July. The flow was negative by $3.9 billion during the month, with $8.4 billion in financial outflows outsizing $4.4 billion in trade inflows (Charts 7 and 8).

No external bond issuance last week

No bonds were issued by Brazilian companies overseas. Year-to-date, issuances add up to $8 billion (Chart 9 and table).

Foreign flows to the stock market were negative in July, but are slightly positive in August

Foreign flows to the stock market are positive by $114 million in August, with inflows to the spot and futures markets (Chart 10).

Foreign and institutional investors as well as banks reduced their long positions in FX derivatives

For another week, non-resident and institutional investors reduced their long positions in FX derivatives, to $34.8 billion and $21.3 billion, respectively. Banks also lowered their positions, to $42.3 billion (Charts 11, 12, 13 and 14).



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