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MP authorizes BC to issue longer swaps, Haddad says

Finance Minister Fernando Haddad confirmed that a provisional measure issued by the government on Monday with initiatives in the credit sector authorizes the Central Bank to issue exchange rate swap contracts with longer tenors.

The possibility of adjusting these operations is a component of the new exchange rate hedging program launched by the government in February.

In a press conference to discuss with the MP, Haddad said that in his opinion the BC could already carry out these longer operations, but that “out of an abundance of caution” it was decided to include the authorization in the law.

“This is also very important to create a long-term swap curve, which we don’t have today. This is very important for long-term investors, to see an exchange rate curve designed in our country,” Haddad said.

In traditional swap contracts, the CB offers contracts in which it exchanges the change in the dollar, plus a rate, for the base interest rate for a given period. This operation, which guarantees exchange protection to the interested parties, means that, in practice, the CB calculates losses when the dollar appreciates, and gains when the real strengthens.

In February the government announced a program that will offer exchange rate protection for foreign investments in sustainable projects in the country, through foreign exchange derivative operations and specific financing lines.

In the first part of the program, related to foreign exchange derivatives, the Inter-American Development Bank (IDB) will make available $3.4 billion for derivatives operations that provide coverage (protection) for sustainable projects with longer terms , over ten years.

Source: Terra

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