BCB Repo Auctions To Boost Confidence

September 2008 | Market Strategy

The Banco Central do Brasil (BCB) took an unusual step last week and held two foreign currency repurchasing agreement (repo) auctions worth US$500mn, in an effort to ease tightening liquidity conditions on local foreign currency markets. The BCB's move highlights how tighter international credit conditions are weighing on Brazilian businesses, particularly importers and exporters with considerable foreign currency exposure. While the repo auctions have and most likely will continue to help to pump short-term liquidity into Brazil's local FX markets, we note that the move alone will unlikely reverse the recent unwinding of carry trade positions and the sobering effects of slumping commodity markets on Brazilian stocks.

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