European Parliament Library

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

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
Table Of Contents
Cover -- CONTENTS -- Glossary -- EXECUTIVE SUMMARY -- THE STRUCTURE OF BRAZIL'S KEY LIQUIDITY MARKETS -- A. Money and Fixed Income Markets -- B. The Foreign Exchange Market -- THE AUTHORITIES' APPROACH TO MANAGING LIQUIDITY -- A. The BCB's Monetary Policy Operational Framework -- B. Foreign Exchange Intervention -- C. Government Bond Market Liquidity Support -- KEY ISSUES OF RELEVANCE TO FINANCIAL STABILITY -- A. The Reliance of Markets on the BCB -- B. The Development of The FX Spot Market -- C. The Representativeness of Key Money Market Benchmarks -- D. Market Maker of Last Resort -- SUMMARY AND RECOMMENDATIONS -- BOXES -- 1. Specification of the Key CDI and SELIC Overnight Benchmarks -- 2. Proposed Changes to the BCB's Distribution and Capital Policies -- 3. International Experiences with Term Deposit Auctions -- 4. The Potential Need for Alternative Sterilization Instruments -- 5. A Preliminary Assessment of SELIC And CDI Versus the IOSCO Benchmark Principles -- FIGURES -- 1. Structure of Key Liquidity Markets -- 2. Foreign Exchange Markets and Intervention -- 3. BCB Liquidity Management and Bond Market Interventions -- 4. Flow of Funds in the Money Markets -- TABLES -- 1. Brazil FSAP-Systemic Liquidity-Key Recommendations -- 2. Overview of the Brazilian Money and Fixed Income Markets -- 3. Indexation of Money Market Instruments -- 4. Interest Rate Derivatives Markets
Literary Form
non fiction
Physical Description
1 online resource (32 pages)
Specific Material Designation
Form Of Item

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