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Brazil to Sell Dollars From Reserves for First Time in 10 Years

Mario Sergio Lima and Marisa Castellani

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Brazil’s central bank announced it will sell dollars from its foreign reserves for the first time in more than a decade following a sharp depreciation of the real.

In addition to dollars, the bank will offer reverse currency swaps, derivatives it uses to intervene in the real futures market, policy makers said in a statement. Investors will be allowed to choose between the two options as part of a strategy to unwind part of the bank’s $69 billion stock of currency swaps.

The central bank intends to “make better use of the available instruments to act on the currency market,” policy makers said in the statement. “The central bank reaffirms its currency policy, based on a floating exchange rate and actions to regulate the functioning of the market.”

The new strategy comes as the real weakens past the level of 4 per dollar amid a global sell-off and growing default fears in neighboring Argentina. The last time the central bank sold dollars on the spot market was in the beginning of 2009, in the aftermath of the global financial crisis.

“In sum, the central bank is offering liquidity on the spot currency market and reducing its stock of currency swaps by the same amount,” said Cleber Alessie, a trader with H. Commcor in Sao Paulo, adding that the strategy will likely support the real on Thursday.

To contact the reporters on this story: Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net;Marisa Castellani in Sao Paulo at mcastellani7@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, Walter Brandimarte

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