Brazil central bank intervenes in spot FX for first time in 2021, sells US$1.5 billion

RIO DE JANEIRO, BRAZIL – Brazil’s central bank intervened in the spot foreign exchange market on Thursday, February 25th, for the first time this year, selling US$1.5 billion in two auctions as the real slumped to its weakest against the US dollar in over four months.

The central bank sold US$920 million in its first intervention, followed by a sale of US$615 million a couple of hours later as the dollar traded above R$5.50.

The US currency traded as high as R$5.5378, a level not seen since early November, according to Refinitiv data. Its rally was part of a global surge, mainly against emerging currencies, led by a sharp rise in US Treasury yields.

“With 10-year US yields some 100 basis points above their lows, the cost of opportunity of investing in Brazil has changed dramatically, especially as domestic risk have been rising in relative terms,” said the head of trading at a bank in São Paulo.

The real has weakened almost 6% this year, one of the biggest decliners against the dollar anywhere in the world. It has failed to benefit from the strong rise in expectations that Brazil’s interest rates will start rising soon.

Central bank president Roberto Campos Neto said recently that policymakers are concerned about high FX volatility, which has risen due to fiscal concerns, record low rates making it cheaper to use the real as a hedging instrument, and uncertainty surrounding the government’s economic reform agenda.

“We would like to have low volatility. But remember that intervening on price is one thing, intervening on volatility is very different,” Campos Neto said during a seminar hosted by Credit Suisse on January 26th.

The central bank has sold around US$3 billion in currency swaps this year, according to brokerage Commcor DTVM. Spot dollar intervention last year totaled US$24.8 billion, it added.

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