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Brazil central bank to continue FX intervention on Wednesday as real nears record low

[BRASILIA] The Brazilian central bank waded into the foreign exchange market on Tuesday in a rare sale of dollars on the spot market after the real slumped to its weakest level against the greenback in almost a year and within sight of its all-time low.

The intervention marked the first time in 10 years that the bank had sold dollars on the spot market without using additional instruments or a commitment to repurchase.

It later announced plans to sell up to US$1.5 billion in the spot market on Wednesday but with repurchase commitments, on top of a planned US$550 million spot market sale linked to regular swap contracts auctions.

The intervention on Tuesday went beyond previously announced changes to the central bank's day-to-day foreign exchange management, meaning it had sold dollars from its international reserves outright, traders said.

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The intervention saw it offer to sell a minimum US$1 million in the spot market at a minimum rate of 4.1250 reais per dollar. The exact amount sold was unknown but should be apparent in the central bank's weekly FX flows data next week, traders said.

The announcement helped the real rebound to around 4.1340 per dollar from an 11-month low of 4.1940 per dollar, which was within sight of its record low of about 4.25 in September 2015 when Brazil was in one of its worst recessions.

At the close of trading, it settled at 4.1581 per dollar, little changed on the day, suggesting the central bank might have to act again and more aggressively if it wants to ease the selling pressure on the real.

The real has lost about 8 per cent of its value against the dollar in August, under pressure from worries surrounding global trade and economic growth, and expectations that Brazil's central bank will continue to cut interest rates.

"It was a surprise. He had just said this morning that the real's move was not atypical compared to other emerging currencies," said a fund manager in Sao Paulo, referring to remarks made by the central bank president, Roberto Campos Neto.

"Also, this was done at lunchtime when liquidity is low. I think the message from the central bank is: 'We won't be predictable,'" the fund manager said.

In testimony to the Senate's economic affairs committee earlier on Tuesday, Mr Campos Neto said the real's recent moves were "well within" normal ranges and that the central bank would intervene in the FX market if liquidity dried up.

Progress on structural and microeconomic reforms would reduce the need to hold such a large stash of FX reserves, he added. Brazil holds about US$385 billion of international reserves, the 10th largest in the world.

Former central bank director and UBS chief brazil economist Tony Volpon said the market was expecting the central bank to explain the reason for the intervention. Asked by Reuters about the reasons, the central bank declined to comment.