The Central Bank announced that it will hold an additional “currency swap” auction this Tuesday (2). This operation means selling dollars in the futures marketwithout necessarily affecting the country’s reserves (understand more below).
The intervention — the first in the Lula government — was announced on a day in which the North American currency was quoted at R$5.06.
Swap contracts, even though they are offered on the futures market, influence the dollar exchange rate on the spot market.
The operation is used by the Central Bank to avoid strong variations in the foreign exchange market.
The Central Bank explained that this is necessary given the effects of the redemption of National Treasury Notes, subseries A3 (NTN-A3), which are exchange-linked securities.
The redemption date is scheduled for April 15th.
In the auction, the BC specifies the volume of contracts and the swap rate. Market participants (such as banks and other financial institutions) then bid based on these contracts.
Once agreed, the contracts have a predetermined expiration date, when the financial adjustment between the parties will take place, based on the variation in the exchange rate and interest rates involved.
If the real depreciates in relation to the foreign currency, the central bank pays the difference to the contract holders; If the real appreciates, contract holders pay the difference to the BC.
This mechanism allows indirect intervention in the foreign exchange market, with impacts on the exchange rate without affecting the country’s foreign currency reserves.
Tags: rise dollar announces foreign currency auction Economy
