Brazil: Financial Sector Assessment Program-Technical Note on Systemic Liquidity Management

November 30, 2018

Preview Citation

Format: Chicago

Brazil: Financial Sector Assessment Program-Technical Note on Systemic Liquidity Management, (USA: International Monetary Fund, 2018) accessed September 18, 2024

Summary

Brazil’s financial markets are generally liquid and sophisticated. Brazil is blessed with a wide array of instruments which investors can use to manage and hedge interest rate and FX risks. The infrastructure supporting markets appears sound and is widely attributed by market participants to ensuring the resiliency of Brazil’s markets despite a multitude of significant shocks. A key foundation of the resiliency of Brazil’s markets is the large structural liquidity surplus (around 20 percent of GDP) and Brazil’s substantial FX reserves. Market participants generally have ample cash reserves that provide a key buffer against liquidity shocks. Brazilian investors have a strong preference for high quality short term liquid investments. Brazil’s history of economic instability drives investors towards short term liquid investments of the highest credit quality such as overnight repos and short-term government bonds. Dollarization is low reflecting restrictions on FX investments available within Brazil but hedges against FX risk are widely available and give investors’ confidence to hold Real. Government bonds are the centerpiece of the securities markets.

Subject: Asset and liability management, Currency markets, Financial institutions, Financial markets, Foreign exchange, Liquidity, Securities markets, Sovereign bonds

Keywords: BCB balance sheet, BCB FX intervention, BCB FX reserve, BCB government bond holding, BCB policy rate, BCB regulation, BCB securities, C. government bond market liquidity support, CR, Currency markets, Derivatives market, Financial market, Fixed income, FX derivatives market, FX market, Global, Interest rate, ISCR, Liquidity, Market participant, OTC derivatives market, Securities markets, Sovereign bonds

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Country Report No. 2018/345
Stock No:

1BRAEA2018009
ISBN:

9781484387573
ISSN:

1934-7685

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