Itaú BBA - Central Bank announces intervention to smooth BRL moves

FX and Capital Markets

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Central Bank announces intervention to smooth BRL moves

May 7, 2018

Intervention in the FX market and weaker labor market figures in the U.S. provided relief to the BRL in the end of the week.

(full report attached)
 

Brazilian currency reached new lows against the U.S. dollar last week

The exchange rate reached 3.57 reais per dollar last week, but the Central Bank’s intervention in the FX market and weaker labor market figures in the U.S. provided some relief later on. The exchange rate closed the week at 3.53 reais per dollar, depreciating 2.0% and performing in line with its peers (Charts 1, 2, 3 e 4).

Central Bank will offer more than needed to roll over all contracts due in June 

Seeking to smooth exchange rate moves, the monetary authority announced that it will start rolling over the $5.7 billion in swap contracts expiring in June, at a pace of 8,900 contracts per day. If this pace is sustained, the Central Bank will offer more contracts than are necessary to roll over all contracts due in June, thus injecting $2.8 billion in swap contracts in the market by the end of the month. Its stock of FX swaps now stands at $24 billion (Charts 5 and 6). 

Currency inflows in April

The currency flow was strongly positive in April, at $13.1 billion by the end of the month. A total of $1.4 billion financial inflows and $2.9 billion trade inflows came through in the last week (Charts 7 and 8).

No external bond issuances last week 

Year-to-date, Brazilian bond offerings overseas total $14.9 billion (Chart 9 and table).

Foreign flows to the stock market were positive in April

Foreign flows to the stock market were positive in April, driven by $936 million inflows to the futures market and $1.3 billion inflows to the spot market (Chart 10).

Non-residents continued to expand long position in FX derivatives, while institutional investors reduced short position 

Non-residents increased their long position in FX derivatives by $296 million, while institutional investors reduced their short position by $1.8 billion. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $23.3 billion, $2.3 billion and $ -1.5 billion, respectively (Charts 11, 12, 13 and 14).



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