Back
31 Dec 2014
Brazil tapers FX swap program – BBH
FXStreet (Barcelona) - Ilan Solot, EM Currency Strategist at Brown Brothers Harriman, expects the Brazilian assets to come under moderate pressure after the Brazilian central bank announced to extend its FX swap intervention program, to sell USD 100mln per day.
Key Quotes
“The Brazilian central bank announced that it will extend its FX swap intervention program (equivalent to selling USD), but that the size will be halved. Instead of $200 mln per day, the bank will sell $100 mln per day. Also, the program was extended until the end of March, a 3-month extension, instead of the 6-month extension last time.”
“We are inclined to see the announcement more as a statement of intention than a firm policy commitment.”
“We doubt that the bank will hesitate to increase the program again or take different measures to provide liquidity should BRL come into excessive pressure once again. Yet they want to cut the program because it’s costly and its effectiveness is probably seen as mixed.”
“Although the details weren’t known, governor Tombini had already hinted at a reduction of the program, so this is not a total surprise. Still, this is probably a more aggressive tapering than many had expected given the context (lower commodity prices, lack of confidence on Brazil’s government and the broad dollar appreciation trend).”
“We suspect that Brazilian assets will come into moderate downward pressure when markets open.”
Key Quotes
“The Brazilian central bank announced that it will extend its FX swap intervention program (equivalent to selling USD), but that the size will be halved. Instead of $200 mln per day, the bank will sell $100 mln per day. Also, the program was extended until the end of March, a 3-month extension, instead of the 6-month extension last time.”
“We are inclined to see the announcement more as a statement of intention than a firm policy commitment.”
“We doubt that the bank will hesitate to increase the program again or take different measures to provide liquidity should BRL come into excessive pressure once again. Yet they want to cut the program because it’s costly and its effectiveness is probably seen as mixed.”
“Although the details weren’t known, governor Tombini had already hinted at a reduction of the program, so this is not a total surprise. Still, this is probably a more aggressive tapering than many had expected given the context (lower commodity prices, lack of confidence on Brazil’s government and the broad dollar appreciation trend).”
“We suspect that Brazilian assets will come into moderate downward pressure when markets open.”