Brazil’s central bank announced that it would hold an additional swap auction on Monday morning, following two interventions earlier on Friday that were unable to curb the depreciation of the real currency.
The moves on Friday marked the second time policymakers resorted to foreign exchange interventions since President Luiz Inacio Lula da Silva took office in January 2023.
In a statement released after markets closed, the central bank said it would offer as much as 14,700 additional swap contracts on Monday.
Earlier in the day, the monetary authority sold 15,300 swap contracts, worth $765 million, out of the 30,000 offered in a surprise auction, after previously selling the entire $1.5 billion it had offered in a spot auction announced the night before.
After opening the session higher against the U.S. dollar, lifted by the spot auction announcement on Thursday, the real reversed course to hit a session low of 5.69 per greenback, weakening more than 1%.
It later regained some ground and ended the session down around 0.2% following the unexpected swap offer. Still, year-to-date depreciation is around 14%, exerting pressure on consumer prices and challenging the fight against inflation.
Central bank chief Roberto Campos Neto, speaking at an event hosted by brokerage XP in Sao Paulo earlier on Friday, said that policymakers do not make interventions based on implications over an hour.
“We look at the flow and what needs to be done,” he said, adding that the decision was based on assessing “atypical flow due to the rebalance of an index.”
The remarks came amid the rebalance of the Morgan Stanley Capital International (MSCI) index, one of the main benchmarks for investors in international stock markets.
“If further interventions are needed, we will do so,” Campos Neto said.
Both central bank governor and monetary policy director Gabriel Galipolo had stressed that market interventions would only be made in cases of dysfunction and after discussion.
Galipolo runs the foreign exchange desk and was recently nominated by Lula to head the central bank from next year.
A market source, speaking on condition of anonymity, said the currency’s recent performance seems to have unsettled policymakers, and the end-of-month Ptax rate provided an opportunity for intervention.
The Ptax rate, calculated by the central bank based on spot market quotations, serves as a reference for settling futures contracts.
“Now that they have decided to raise interest rates, the decision to sell dollars is easier,” the source said.
The central bank kept the benchmark interest rate unchanged at 10.50% in July for the second consecutive time but hardened its tone, emphasizing that it would not hesitate to raise rates if necessary.
Lula said in a radio interview earlier on Friday that if Galipolo tells him that interest rates need to be raised, “that’s fine.”