MercoPress. South Atlantic News Agency

Brazil's central bank will sell dollars in the spot currency market; first time in a decade

The announcement came on the day Brazil’s real fell 2% to below 4.05 per dollar for the first time since May and currency market volatility jumped

Brazil’s central bank announced it would sell dollars outright in the spot currency market this month for the first time in over a decade, changing its regular market operations in response to rising demand for liquidity.

The bank said dollar sales would be carried out along with reverse currency swaps, a response to the “current economic environment” but not a change to the bank’s floating exchange rate policy and support for the smooth functioning of markets.

The announcement came on the day Brazil’s real fell 2% to below 4.05 per dollar for the first time since May and currency market volatility jumped as U.S. recession fears and market turmoil in Argentina took their toll on local assets.

In a statement on its website, the central bank said it would sell up to US$ 550 million daily in the spot market along with reverse swaps of the same value from Aug. 21-29. The operation would match the US$ 3.84 billion in currency swaps contracts expiring in October but which have not yet been rolled over.

“This is an improvement in the use of instruments at (the bank’s) disposal to operate in the foreign exchange market ... taking into account current market conditions,” the statement said.

A central bank spokesman said this would be the first outright sale of dollars since February 2009. Since 2013, the central bank has only sold dollars in the spot market linked to repurchase agreements, which were essentially dollar loans.

According to the central bank, the operations later this month will not affect its net currency position.

In March, the central bank responded to the Real’s weakness and heightened market volatility at the time by selling around US$ 4 billion in the spot market linked to repurchase agreements, although around US$ 3 billion of that effectively rolled over expiring contracts.