(Adds comment from government source, background, byline)
By Patrícia Duarte
SAO PAULO, Aug 24 (Reuters) - Brazil has no plans to sell dollars from its foreign reserves to curb foreign exchange volatility because its strategy of offering currency swaps is working “very well,” a member of President Dilma Rousseff’s economic team told Reuters on Monday.
In recent weeks, the central bank has stepped up its pace of rolling over the swaps. By the end of August it is expected to have rolled over all swaps that expire on Sept. 1.
The central bank’s currency swaps currently total about $100 billion.
Before tapping its $371 billion foreign reserves, the official added, the government would consider selling dollars through repurchase agreements if necessary to contain volatility that has spiked globally due to concerns about the Chinese economy.
Any decision should be made carefully, the source said.
“Nobody is able to analyze China very well,” said the source, who asked for anonymity. “We need to wait a little longer, we can’t act right away.”
The source argued that it is hard to gauge which will be the permanent effect of China’s rout on the global economy but acknowledged that markets risk overshooting in the meantime due to the uncertainty.
The Brazilian real s weakened as much as 2.5 percent on Monday to a 12-year low of 3.58 per dollar as investors feared a decline in Chinese demand for commodities would further hurt Brazilian exporters. It later trimmed some losses to trade 1.4 percent lower.
The government is not very worried about the level of the currency but with the possibility of the foreign exchange market becoming “dysfunctional,” the source said.
Reporting by patricia Duarte; Writing by Walter Brandimarte; Editing by W Simon