CB slowly dismantling FX swaps program

The central bank of Brazil is slowly dismantling the FX swaps program that has been in place for the last two years. The central Bank continues to slowly reduce the amount of hedging that it provides to the market. 

Two weeks ago, the central Bank was providing on average a daily $350 mn in FX hedge that was later reduced to $315 mn and now being at $260 mn. 

"This strategy is the right way to go for the central bank given the large stock of FX swaps that at its peak accounted for around the equivalent of over $110 bn. In the short term, the high cost of carry and the positive momentum of the fiscal austerity measures should provide a cushion for the BRL however; our view continues to be that Brazil needs a weaker BRL in order to help close the imbalances in external accounts", says Commerzbank.