UPDATE 1-Brazil's central bank extends currency intervention program

Fri Jun 6, 2014 6:41pm EDT

(Recast, adds context about program and real closing price)

RIO DE JANEIRO, June 6 (Reuters) - Brazil's central bank on Friday announced it will extend its forex intervention program past June 30, but it gave no details, leaving investors wondering if it would reduce the offer of currency swaps, its instrument of choice to intervene in the market.

The bank said in a statement it will communicate the details of the extended program at a later date.

On Monday, the Brazilian real slid to its lowest in two months as traders feared the central bank planned to scale back its intervention program after a recent drop in demand for swaps, derivatives that provide hedge against currency losses.

As part of the program, the central bank sells $200 million worth of swaps daily. It can also sell dollars with repurchase agreements whenever it deems necessary.

The central bank announced its program of daily interventions on Aug. 22, when the real traded around 2.45 per dollar. In the end of 2013, it extended the program until at least June 30 but slowed down the intervention pace.

A weaker real threatens to fuel inflation, which is already near the ceiling of the official target and a major headache for President Dilma Rousseff, who is seeking re-election on Oct. 5.

Rousseff's administration on Wednesday removed a 6 percent tax on short-term borrowing abroad to help stem the recent depreciation of the real.

The real ended Friday at 2.2487 per dollar, 0.5 percent stronger than Thursday's close. (Reporting by Walter Brandimarte; Writing by Alonso Soto; Editing by David Gregorio)

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