Bloomberg News

Brazil Real Declines as Greek Debt Talks Damp Growth Optimism

January 31, 2012

Jan. 30 (Bloomberg) -- Brazil’s real dropped the most in three weeks as a struggle to complete Greece’s bond negotiations threatened to derail talks aimed at containing Europe’s debt crisis.

The real fell 0.7 percent to 1.7488 per U.S. dollar, from 1.7370 on Jan. 27, the biggest drop since Jan. 6. The currency has risen 6.8 percent in January, poised for its first monthly gain since October.

European policy makers are discussing plans to directly intervene in Greek budget decisions as the country struggles to cut its deficit, two euro-region government officials said Jan. 28. The real declined with most other emerging-market currencies as concern Europe’s crisis will damp global growth pushed it to give back some of this month’s gains, said Italo Abucater, head of currency trading at Icap do Brasil CTVM.

“Greece’s situation is accentuating the European crisis, that it’s not being resolved,” Abucater said by phone from Sao Paulo. The real “is accompanying the external environment.”

Concern that Greek debt talks may undermine efforts to contain Europe’s debt crisis also helped pull down yields on Brazilian interest-rate futures contracts, said Luciano Rostagno, chief strategist at Banco West LB in Sao Paulo.

The yield on the contract due in January 2013 fell 10 basis points, or 0.10 percentage point, to 9.51 percent.

Brazil’s broadest price index rose less than economists forecast in January as raw material costs declined and prices for clothing remained virtually unchanged.

“Aside from the fact that the IGP-M came a little below market expectations, the question of the European crisis is weighing on markets in general,” Rostagno said by phone. “The size of a Greek haircut is still undefined. Greece could have a disorderly default. That increases European borrowing costs and brings more worries.”

The IGP-M index of wholesale, construction and consumer prices rose 0.25 percent in January from December, the Getulio Vargas Foundation said on its website today. The median estimate of 29 analysts surveyed by Bloomberg was for an increase of 0.30 percent. The same index had fallen 0.12 percent in December.

--Editors: Richard Richtmyer, Glenn J. Kalinoski

To contact the reporters on this story: Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net Telma Marotto at tmarotto1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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