Brazil cenbank won't roll over reverse currency swaps - report

Wed Nov 14, 2012 8:50am EST

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RIO DE JANEIRO, Nov 14 (Reuters) - Brazil's central bank will not roll over some reverse currency swaps that expire in the next couple of months, a local news agency reported, in a sign the government will not allow the real to weaken much further.

Agencia Estado late on Tuesday quoted a central bank source as saying that, "given current market dynamics," the bank will not roll over reverse swaps - derivative contracts designed to weaken the currency - maturing on Dec. 3 and Jan 2.

Those contracts were sold at the end of October, when the real approached the lower end of a tight trading range of 2.0-2.1 reais per dollar, where it has been stuck since early July.

The central bank declined to comment on the Estado report.

Since the end of October, however, the real has lost more than 2 percent against the dollar to close Tuesday at its weakest level in four months. Part of those losses were attributed to market speculation that the government would favor a currency weaker than 2.1 per dollar to support the economy.

The real gained 0.2 percent on Wednesday to 2.0646 per dollar.

The Estado news agency also quoted the central bank source as saying that, if necessary, the central bank could sell traditional currency swaps, which are designed to strengthen the currency, in order to cancel the reverse swaps before they expire.

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