July 1, 2014 / 11:11 PM / in 3 years

Brazil central bank reduces pace of currency swap rollover

RIO DE JANEIRO, July 1 (Reuters) - Brazil’s central bank will kick off on Wednesday the rollover of currency swaps that expire early in August by offering less contracts than it did last month, a sign it wants to stop the real from gaining much further.

The bank said in a statement it will auction on Wednesday as many as 7,000 currency swaps - derivatives that provide protection against losses in the real - as part of its strategy to renew $9.5 billion worth of swaps that expire on August 1.

Last month, it offered as many as 10,000 contracts per day to roll over some $10.1 billion worth of swaps that expired on July 1, renewing about 85 percent of those contracts.

If the central bank keeps the new rollover pace intact until the end of the month, it will be able to renew about 80 percent of the Aug. 1 maturities.

The regular sale of swaps has been part of a successful central bank program of intervention in the foreign exchange market, which has helped the real gain about 7 percent so far this year.

Last week, policymakers extended the intervention program without changes until the end of the year, causing the real to rally past the level of 2.2 per dollar for the first time in more than two months.

Over the past couple of months, the central bank succeeded in stabilizing the real largely within 2.20 to 2.25 per dollar. Many analysts believe policymakers want to keep the currency within that range in the short term as it is considered a sweet spot for both exporters and policymakers worried about inflation from imported goods.

The real closed on Tuesday at 2.203 per dollar. (Reporting by Walter Brandimarte and Bruno Federowski; Editing by Bernard Orr)

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