MNI: Brazil To Bolster Legal Basis Of Longer CenBank Swaps

Upcoming government regulation to explicitly allow the Central Bank of Brazil to issue longer-term foreign currency swaps will formalize a capacity it already has in order to avoid potential legal problems, a source familiar with the matter told MNI.

The BCB’s stock of USD100 billion in swaps are currently issued with a 365-day maturity, with its legal department advising against longer terms. The change, which will encourage it to issue longer-dated derivatives "when and if necessary", would enhance liquidity for extended periods of time. The measure comes following discussions between the technical BCB team and currency dealers, a source said, adding that there was no intention to increase the central bank’s current stock of contracts.

GREEN HEDGING

The Ministry of Finance is also planning to announce measures for FX hedging for green projects on Monday in Sao Paulo, sources told MNI, confirming a report from Reuters. The Interamerican Development Bank IDB will provide USD2 billion, and the World Bank USD1 billion, part of which will go to a Climate Fund, managed by the Brazilian Development Bank, which will provide six types of hedges against currency risk.

The new green hedges and the move to boost the central bank’s swaps provision are not directly related, though they are likely to be announced as part of the same executive measure, the sources said.

Spokespeople for the finance ministry and the central bank declined to comment when contacted by MNI.