December 5, 2013
Matthew Malinowski & Raymond Colitt – Bloomberg, 12/05/2013
Brazil’s central bank said its current pace of interest rate increases remains appropriate to rein in consumer prices, repeating language it used to justify previous half-percentage-point increases. Swap rates rose.
Policy makers, led by President Alexandre Tombini, voted unanimously on Nov. 27 to raise the benchmark Selic rate to 10 percent from 9.5 percent, marking the fifth straight 50 basis-point increase. Monetary policy must remain especially vigilant, officials said in the minutes to their Nov. 26-27 meeting released on the bank’s website.
The central bank has raised borrowing costs by 275 basis points since April as the real dropped the most among major currencies in the past six months and deteriorating fiscal accounts sparked investor concern over a credit downgrade. Indonesia and Pakistan are the only other major economies tracked by Bloomberg that have boosted rates this year.
November 18, 2013
Francisco Marcelino – Bloomberg, 11/17/2013
Brazil’s central bank President Alexandre Tombini didn’t see any shortage of foreign currency in the country’s spot market in the week the real declined to a two-month low.
The nation and other emerging markets face a “sell-off” because of “interest rate normalization” in advanced economies, Tombini said in a speech delivered in Santiago on the evening of Nov. 15 and published on the Central Bank of Brazil’s website yesterday. The world’s second-biggest emerging economy after China is “providing currency hedge for the private sector” with an $100-billion intervention program for 2013, Tombini said.
Brazil’s real has fallen 5 percent since Oct. 31, when the government said its budget deficit widened to the largest in almost four years on concern about a credit rating downgrade. On Nov. 13, the currency dropped to 2.3341 per dollar, the weakest since Sept. 4.
November 1, 2013
Dawn Kissi – Open Markets, 10/31/2013
An impressive amount for one of the world’s largest emerging markets, yes. However many in the know and those with knowledge of how Brazil’s Central Bank thinks and operates, sees the market intervention as business as usual for BACEN.
Since early 2013, Brazil’s Central bank has been offering approximately the same amount of USD daily intervention swaps to the market on a regular basis, according to Brazil economists and analysts. The key difference with the action taken in August is that the Bank had actually been intervening in the markets via larger auctions, less frequently and on unpredictable dates. In essence, by shifting to a regular schedule and making their plans public, BACEN has now reassured the market, as well as helped to stabilize any expectations, particularly during days of reduced liquidity, explains Paulo Vieira da Cunha, Former Deputy Governor of the Central Bank of Brazil.
According to Vieira da Cunha, “the Central Bank continued to accumulate FX reserves even as it was offering this massive volume of DI/Swaps.” Overwhelmingly, the majority of FX transactions handled in Brazil are done through the futures market, which trades at BM&F Bovespa. The country’s cash (pronto) market is a small one and often illiquid.
October 31, 2013
Paulo Trevisani & Jeffrey T. Lews – The Wall Street Journal, 10/31/2013
Brazil’s central bank finds itself caught in a quandary: After launching a new program to prevent the national currency from depreciating too abruptly during a volatile summer, officials must decide whether to abandon or alter the program now that the currency is gaining value.
The central bank, like many of its counterparts in emerging markets, has struggled for months to cope with the global market turmoil caused by the twists and turns of U.S. monetary and fiscal policy.
Its task is complicated because Brazil’s inflation, at just under 6%, is running close to the top end of the central bank’s target range. A weaker currency can add to inflationary pressures, but too strong a currency can harm the nations’ exports.
October 30, 2013
Brazil’s central bank rolled over about two-thirds of the $8.9 billion worth of currency swaps that expire on November 1 after selling a sixth, and likely final batch, of longer-dated swaps on Wednesday.
These swaps are derivatives that offer investors protection against a possible depreciation of the real.
The central bank sold all of the 20,000 swaps it had offered in each of the six auctions it held since last week to renew the expiring maturities, a sign of investors’ appetite for currency hedge.
October 29, 2013
Silvio Cascione – Reuters, 10/28/2013
Despite all the market talk about Brazil’s frustrating performance over the past few years, Latin America’s largest economy remains a top destination for global funds in at least one area: fixed income markets.
Foreign purchases of local debt have jumped since June, when Brazil, shaken by prospects of higher market interest rates in the United States, scrapped a key tax on foreign investments in local bonds.
Monthly inflows to local bonds and other fixed-income instruments traded onshore soared to an average of $6 billion between June and September, from just $0.8 billion in the first five months of the year, according to the chart below based on central bank data released on Friday:
October 23, 2013
Blake Schmidt – Bloomberg, 10/23/2013
Brazil’s real fell on speculation the central bank will limit the rollover of currency swaps that have supported the world’s biggest two-month rally.
The real depreciated 0.5 percent to 2.1837 per U.S. dollar at 3:36 p.m. in Sao Paulo. Swap rates on the contracts maturing in January 2015 dropped two basis points, or 0.02 percentage point, to 10.51 percent.
While the central bank extended maturities on $987 million of foreign-exchange swaps today after rolling over $988 million yesterday, it didn’t say whether it would do so for the rest of the $8.9 billion of contracts maturing Nov. 1.
October 22, 2013
Joe Leahy & Delphine Strauss – Financial Times, 10/22/2013
When Alexandre Tombini launched in August a determined response to a wave of currency depreciations sweeping emerging markets, central bankers of other embattled nations must have looked at the Brazilian with envy.
Brazil’s large derivatives market allowed the central bank president to intervene in the currency through swaps. The $60bn campaign was underwritten by Brazil’s large external reserves, which have risen more than 12 times since 2000 to $373bn.
The real, which had tumbled 15 per cent from the beginning of the year, heading for R$2.50 to the dollar, immediately reversed its losses.
October 1, 2013
Brazil posted a primary budget deficit of 432 million reais ($194.07 million) in August , central bank data showed on Monday, the worst result for that month in more than a decade.
The primary budget balance, which represents the public sector’s excess revenue over expenditures before debt payments, was expected to reach a surplus of 1.85 billion reais, according to the median forecast of 10 analysts surveyed by Reuters. The country had a primary surplus of 2.3 billion reais in July.
The primary balance is a gauge closely watched by investors because it measures a country’s ability to service its debt. The government missed its primary surplus target in 2012 and will miss it again this year as a slew of tax breaks aimed at reviving the economy hits revenues. The country posted a nominal budget deficit of 22.303 billion reais in August.