Itaú BBA - Central Bank Announces the End of FX Swap Program

FX and Capital Markets

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Central Bank Announces the End of FX Swap Program

March 30, 2015

The central bank also informed its intention to fully rollover swap contracts expiring after May 1st.

(full report attached)

Volatility remains high in the foreign exchange market.

The exchange rate was still highly volatile last week, fluctuating between 3.10 and 3.25 reais per U.S. dollar. The exchange rate closed the week at 3.25, depreciating 0.6% from the previous week’s closing price, in line with its peer currencies (Charts 1, 2, 3 and 4).

Central bank announced the interruption of daily offers of FX swap contracts.

Last week, the monetary authority announced that it will discontinue the FX swap program started on August 22, 2013. The central bank also informed its intention to fully rollover swap contracts expiring after May 1st. Throughout March, the monetary authority is set to roll over 78% of the total batch expiring on April 1st (Charts 5 and 6).

Currency flow was negative last week.

The currency flow was negative once again in the third week of March, with trade and financial outflows ($1,030 million and $438 million, respectively). Still, the currency flow is positive month-to-date, by $762 million (Charts 7 and 8).

No new bond issuance overseas in the past week.

Another week passed without any bond issuances in the external market. So far, issuances add up to $400 million year-to-date (Chart 9 and table).

Foreign flows to the stock market became positive in March.

Foreign flows to the stock market are positive by $878 million in March, with outflows from the futures market, but inflows to the spot market (Chart 10).

Institutional investors and non-residents reduced their long FX derivatives positions last week.

During the past week, institutional investors and non-residents reduced their long positions in FX derivatives, particularly dollar futures, to $27.3 billion and $38.8 billion, respectively (Charts 11, 12 and 13).

Another week of outflows from equity and fixed income funds dedicated to Brazil.

During the week ended on March 25, there were once again net outflows from equity funds ($38.4 million) and fixed income funds ($98.7 million) (Charts 14 and 15).


 


 



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