BC will make first intervention in the Lula government after the dollar hits R$ 5.06

The Central Bank announced, on Monday night (1st), that it will inject US$ 1 billion into the Brazilian market this Tuesday (2) to control the fluctuation of the dollar, which closed the first business day of the week at R$ 5.06. It will be the first intervention by the monetary authority since the beginning of the third government of President Luiz Inácio Lula da Silva (PT).

The billion dollar injection into the market will be made through an additional auction of up to 20 thousand swap exchange rate, equivalent to US$ 1 billion. The objective is to provide protection against excessive variations in the dollar in relation to the real (exchange rate hedge) and guarantee liquidity to the domestic market.

In a statement, the BC stated that it will act “to maintain the regular functioning of the foreign exchange market” in view of the effects of the redemption of the NTN-A3 bond (National Treasury Note, subseries A3), scheduled for April 15 (see in full) . The purchase of a contract swap by the BC it works like an injection of dollars into the futures market, protecting those who purchase against the devaluation of the real.

The auction of swap exchange rate is a measure that allows the monetary authority to deal with the demand for foreign currency, avoiding dysfunctions in the exchange market. Economists compare this intervention to opening an alternative door at a crowded party.

This Monday (1st), the dollar rose 0.88%, closing the session at R$5.058, amid the strong appreciation of American Treasury bonds – called “Treasuries” – and low liquidity due to the holiday in Europe . On the Brazilian stock exchange, the Ibovespa fell 0.87%, closing the session at 126,990 points and accumulating a drop of 4.53% for the year.

In 2023, the BC did not hold extra dollar auctions due to the low volatility of the real and the strong trade flow, marking the smallest intervention by the monetary authority since the adoption of the floating exchange rate regime in 1999.

For this year, economists point out that exchange rate volatility will depend on the interest policy of the Fed – the “Federal Reserve”, equivalent to the Central Bank – and global geopolitical risks, while in Brazil the trajectory of public accounts is the main concern.

Since closing at R$4.85 on December 28, 2023, the dollar has shown an increase, accumulating 4.25% in the year. The closing of this Monday (1st) marked the highest price of the year.

The BC’s latest interventions took place in 2022, when it sold US$500 million in an extraordinary auction, amid concerns about the Fed’s aggressive interest rate policy.