Brazil’s central bank to hold additional swap auctions to meet demand for excessive hedging

September 24 (Reuters)Brazil’s central bank said on Friday it would hold additional twice-weekly auctions of traditional currency swaps, starting September 27, to meet demand from banks that are dismantling their “over-hedging” position to protect against exchange rate fluctuations.

The auctions will take place on Mondays and Wednesdays. The central bank said in a statement it would auction 14,000 traditional swap contracts, equivalent to $ 700 million, on Monday with maturities between June 1 and September 1, 2022.

Earlier this month, central bank chief Roberto Campos Neto said the government would likely have to intervene in forex markets to meet demand from the dismantling of over-hedging positions.

Banks stopped looking for over-hedging positions after changes to tax rules in early 2020. Canceling those positions forces banks to buy dollars.

At the end of 2020, the estimated dollar purchase volume related to over-coverage was between $ 15 billion and $ 16 billion.

If the central bank keeps its sales twice a week at the rate of the auction scheduled for Monday at the end of the year, it will inject at least $ 18 billion into the market.

Separately, the bank will continue to renew existing swap contracts that are about to expire. On Monday, he will hold an auction to renew 15,000 swap contracts worth $ 750 million that will expire on December 1.

(Reporting by Jose de Castro; Writing by Jake Spring; Editing by Sam Holmes)

(([email protected]; +55 61 99 653-2429; Reuters messaging: [email protected] / Twitter: https://twitter.com/jakespring))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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