In response to the rising dollar, the Central Bank sells US$1,37 billion in the futures market.

Kelly Oliveira*

Reporter from Agência Brasil

Brasilia – The Central Bank (BC) intervened again in the foreign exchange market today (5). The monetary authority carried out a traditional currency swap operation, equivalent to selling dollars in the futures market, to contain the rise of the dollar.
In Wednesday's auction, the Central Bank sold US$1,37 billion in the futures market. The bank offered 40 contracts, but 27,5 were traded, maturing on July 1st of this year. The Central Bank also carried out this operation last Friday (31) and sold US$876,7 million in the futures market. The institution had not sold dollars in the futures market since March 27th of this year.

The dollar has been rising due to indications that the Federal Reserve (Fed, the US central bank) will reduce the monetary stimulus that has boosted the US economy in recent years. With the decrease in the volume of dollars in circulation, the currency becomes more expensive, which affects exchange rates worldwide.

Yesterday, the Ministry of Finance announced the decision to eliminate the Tax on Financial Operations (IOF) for foreigners investing in fixed income in Brazil. Since October 2010, the applicable rate had been 6%. The measure was published in today's edition of the Official Gazette of the Union.

The change stimulates the inflow of foreign resources and, consequently, helps to contain the rise of the dollar. A more stable dollar is important as one of the tools to help the government combat inflation with the aid of imported products. If the dollar is higher, the higher prices of imported products are passed on to consumers in the domestic market.

However, yesterday, Finance Minister Guido Mantega denied that the IOF exemption aims to keep the dollar strong to contain inflation. According to Mantega, the measure only aims to adapt the exchange market to the new reality of lower international liquidity.

Today, Mantega said that the government was still evaluating whether reducing the IOF tax to zero would affect the price of the dollar, even with the currency falling in the early morning. But then, the dollar rose again, as it had on other days. With the increase, the Central Bank decided to intervene in the foreign exchange market.

*Contributed by Daniel Lima // Edited by Juliana Andrade