* Central bank calls 2 swap auctions in the morning
* Later, bank calls 2 auctions to sell dollars on spot
* Real closes 0.5 pct stronger at 2.119 per dollar
By Walter Brandimarte
RIO DE JANEIRO, Dec 3 Brazil's central bank on
Monday intervened heavily in the foreign exchange market to halt
a sharp currency depreciation and boost dollar liquidity at the
end of the year, when greenbacks are traditionally scarce in the
The series of interventions, which included two currency
swap auctions in the morning and two dollar auctions on the spot
market in the afternoon, caused the real to close only
0.5 percent stronger at 2.1190 per U.S. dollar.
Despite the magnitude of the actions, investors believe the
central bank is only trying to smooth out an expected weakening
of the real, which lost 4.7 percent in November, half of that in
the last week of the month.
Bets on a weaker real greatly increased on Friday after data
showed the Brazilian economy grew in the third quarter at half
the rate expected by economists, but investors still wonder how
much the central bank will allow the real to slide.
"We still don't know how much weaker the government wants
the currency to be," said Joao Medeiros, a currency director at
The real dropped to 2.1382 per dollar right after the market
opened, its weakest level in more than 3-1/2 years, before the
central bank called two consecutive auctions to sell traditional
currency swaps - derivative contracts that support the real by
emulating the sale of dollars in the futures market.
The real erased its losses and jumped as much as 1.6 percent
after that initial move, which suggested the central bank was
not comfortable with the currency's fast depreciation pace. But
gains slowly faded in the afternoon as investors followed bank
recommendations to reduce exposure to the real.
The central bank then announced two separate auctions to
sell as much as $5 billion on the spot market with the agreement
to repurchase the amounts sold in 30 and 61 days, respectively.
"Investors are becoming long dollars, I believe that is
because they need to hedge their positions. Even after two swap
auctions, the market wanted more," said Reginaldo Galhardo, head
of currency trading at Treviso brokerage in Sao Paulo.
It was the first time the central bank sold dollars with
repurchase agreements since April 2009 - a strategy it normally
uses to provide temporary liquidity to the foreign exchange
The central bank did not say how much it sold in the
afternoon auctions, but it signaled there was demand for both.
In a statement, the bank said it was setting cutoff prices of
2.12245 reais and 2.1324 reais for each of the auctions, with
repurchase dates on January 4 and February 4, respectively.
Less than two weeks ago, central bank president Alexandre
Tombini warned the bank was ready to protect the currency from
speculative bouts and provide temporary liquidity to the
exchange market at year-end.