Central Bank Sells US$3 Billion of Reserves to Counter Bullish Dollar

RIO DE JANEIRO, BRAZIL – On Monday, March 9th, the Central Bank announced that it sold US$3 billion on demand from its international reserves to try to contain the soaring dollar as the price of oil tumbled. The US currency hit R$4.80 before the bank’s action.

Early in the morning, the Central Bank canceled the US$1 billion auction projected and increased the value to US$3 billion. The decision to increase the auctioned volume was based on “market conditions,” according to the Central Bank press office.

The Central Bank decided to expand the use of intervention tools in the foreign exchange market, after the US$5 billion sale in foreign exchange swaps (which is equivalent to the sale of dollars in the future market) failed to prevent the dollar from breaking records in the midst of the growing distrust of the market with the stance of the monetary authority in the face of foreign exchange pressure.

In the afternoon, the Central Bank sold another US$465 million in a new cash dollar auction, which eased the bullish pace. At 4:05 PM, the US currency was quoted at R$4.7395, up 2.28 percent.

Since December 20th last year, the Central Bank had not carried out this type of operation – which had been restarted in August 2019 and had not been employed for a decade.

On Friday, the currency experienced slight relief after 12 consecutive highs and closed down 0.36 percent at R$4.6343 in a session marked by volatility and new Central Bank intervention. In the week, the dollar accumulated a high of 3.42 percent. In the year, it has already climbed 15.57 percent.

Oil in decline

Oil contract prices fell by nearly 20 percent on Monday after Saudi Arabia cut the selling price of the barrel and signaled the start of a price war among major producers. At the opening of business in the Asian market, still on Sunday night (Brasília time), the price of Brent crude oil plummeted 31 percent, the highest fall since the Gulf War (1990 and 1991).

Saudi Arabia’s decision comes in the wake of the failed negotiations between the Organization of Petroleum Exporting Countries (OPEC) and Russia on the volume of production of the commodity. Russia opposed the production cuts suggested by OPEC to stabilize oil prices in the midst of the coronavirus epidemic, which is slowing the global economy and decreasing demand for energy.

Source: O Estado de S. Paulo