Brazil Announces New War Chest of $55 bn to Defend Real
The Bank of Brazil said Thursday it is ready to intervene heavily on currency markets from Friday, making available $55 billion to prop up the sagging real.
The central bank said it will engage in so called swap operations: it will offer dollars in the futures market, with a pledge to buy them back in a determined time frame no matter what they are worth.
The market tends to construe this as a bet that the dollar will not continue to rise, as the bank expects to spend fewer reales when it has to buy back the dollars as the contract matures.
A bank statement said that from Monday to Thursday the bank will offer $500 million a day, and $1 billion on Fridays.
The bank said it did not rule out other operations if it deemed them necessary.
So far in 2013 the bank has offered $45 billion and is to inject 55 billion through the end of the year.
Those $100 billion represent nearly a quarter of Brazil's international reserves, said the newspaper O Estado de Sao Paulo.
The real has dropped 18.5 percent in value so far this year.
Source: Agence France Presse
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