Brazil's central bank extends FX intervention plan

Brazil's central bank on Tuesday announced it will extend its foreign exchange intervention program without changes until at least the end of the year. The bank said in a statement it will sell as much as $200 million worth of currency swaps in daily auctions from Mondays through Fridays - the same amount it currently offers to investors seeking protection against possible currency losses.
The central bank introduced regular auctions of currency swaps last August in one of its most successful initiatives to stabilise Brazil's volatile exchange rate. After strengthening in 2011 to levels that threatened local industry, the real weakened sharply in 2012-13, fuelling inflation that has dragged on President Dilma Rousseff's popularity.
The intervention program has helped the real gain nearly 6 percent so far this year. Over the past few months, the currency has largely stabilised within a tight range of 2.20 to 2.25 per dollar. On Tuesday, the real closed at 2.2247 per dollar.
Some analysts have said the central bank should take advantage of relatively calm global markets to wind down its program, saving firepower for moments of real market stress.
But reducing the pace of forex intervention has proved to be a tricky task for policymakers, who watched the real slide 1.5 percent on a single day earlier this month when the central bank tried to reduce the rollover pace of expiring swaps. In addition to selling currency swaps daily, the central bank will sell dollars with repurchase agreements if it needs to boost liquidity in the forex market, according to the statement posted on the bank's website.
The bank also said it may sell dollars using "all instruments within its reach" whenever it deems necessary to stabilise the exchange rate.
Brazil currently has about $380 billion worth of foreign reserves and a stock of nearly $90 billion of currency swaps, which are derivatives that allow the central bank to intervene in the market without selling a single dollar of those reserves. If the bank continues to roll over 100 percent of the expiring swaps, its stock of swaps will swell to more than $115 billion by the end of the year, Credit Suisse analysts estimated recently.