UPDATE 1-Brazil central bank to use most efficient FX intervention tools -director

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BRASILIA, Sept 27 (Reuters) - Brazil’s central bank will use the most efficient tools at its disposal whenever it intervenes in the foreign exchange market, the bank’s director of monetary policy Bruno Serra Fernandes said on Friday.

Debate around the bank’s FX intervention policy has intensified since it sold dollars in the spot market last month for the first time in over a decade, an indication it is willing to chip away at its $385 billion mountain of reserves.

In a presentation published on the central bank’s website, Serra said the bank will use the “most efficient instruments at any given moment” when acting in the market, adding that FX swaps are an important tool when the currency is not fully convertible.

On Thursday, central bank president Roberto Campos Neto noted that in recent years hedging demand from investors and corporates meant it made sense to sell dollars via the FX swaps market. But now, demand for dollars is building in the spot market as companies need hard currency to pay down foreign debt.

On Friday, Serra said Brazilian firms are raising more cash on local capital markets, attracted by record low borrowing costs, which is allowing them to pay down debt overseas and “improving the Brazilian economy’s net foreign liabilities.”

Campos Neto said on Thursday that the central bank is closely watching the real’s exchange rate for signs that its recent weakness is pushing up risk premia in financial markets or stoking inflation expectations.

So far, neither appears to have happened, but the bank stands ready to take appropriate steps if it sees distortions in the market.

$1 = 4.16 reais Reporting by Jamie McGeever; Editing by Catherine Evans and Toby Chopra