Itaú BBA - Central Bank announces partial rollover of FX swap contracts

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Central Bank announces partial rollover of FX swap contracts

September 18, 2017

Central Bank announced rollover of 60% of contracts due in October.

(full report attached)

Exchange rate remains range-bound at 3.10-3.15

Notwithstanding higher-than-expected inflation readings in the U.S. and the fact that the Central Bank resumed interventions in the FX market, the Brazilian currency remained range-bound during the week. The exchange rate closed the week at 3.11 reais per U.S. dollar, depreciating slightly by 0.7%, in line with its peers (Charts 1, 2, 3 and 4).

Central Bank resumes partial FX swap rollovers 

On Thursday, the monetary authority announced that it would start rolling over swap contracts expiring in October. If the pace of 12,000 contracts per day is sustained throughout the month, 60% of contracts due in October will be rolled over and $4 billion will be allowed to expire. The Central Bank's stock of FX swaps now stands at $28 billion (Charts 5 and 6). 

Currency outflows in September

The currency flow is negative in September, as $1.5 billion financial outflows outsized $207 million trade inflows. Last week, the flow was negative by $800 million (Charts 7 and 8).

New bond offerings abroad

A pulp and paper enterprise based in Brazil issued $500 million in bonds due in 2024. An oil and gas company offered the same amount in bonds, but due in 2027. Now Brazilian corporate borrowings abroad total $17.7 billion year-to-date vs. $19.2 billion a year ago (Chart 9 and table).   

Foreign flows to the stock market are negative in September

Foreign flows to the stock market are negative by $23 million month-to-date, with $948 million outflows from the futures market nearly balancing $925 million inflows to the spot market (Chart 10).

Non-residents increased their short positions in dollar futures

Last week, non-residents increased their short positions in dollar futures by $1.4 billion. Other FX derivatives positions were virtually unchanged. Non-residents, banks and institutional investors hold positions of $14.6 billion, $17.4 billion and -$5.8 billion, respectively (Charts 11, 12, 13 and 14).


 



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