Brazil Real Falls Second Day as ECB Opposes Greek Debt Losses

Brazil’s real fell for a second day as speculation that the European Central Bank remains opposed to taking losses on its Greek bond holdings raised concern that solutions to the debt crisis in the region will be delayed.

The real weakened 0.2 percent to 1.7615 per U.S. dollar at 12:07 p.m. in Rio de Janeiro, from 1.7585 yesterday. Trading at the BM&FBovespa exchange, Latin America’s largest securities exchange, is closed for a holiday in Sao Paulo.

The ECB is concerned that joining private-sector investors in taking losses on Greek debt will damage confidence in the institution, according to two people familiar with the Governing Council’s stance. Brazil’s Finance Minister Guido Mantega told reporters on Jan. 23 that the government will make room for a more “flexible” monetary policy to support the economy, fueling speculation lower interest rates will reduce the allure of the country’s currency.

“Global markets continue to bleed, pushing Latin American currencies to once again open the trading session in negative territory,” Eduardo Suarez, a senior currency strategist at Scotia Capital Inc. wrote in a note today. While a stock market rally attracts foreign capital to Brazil, the interest rate outlook “looks unsupportive” for the real, he wrote.

The government will rely on credit expansion, lower borrowing costs, an increase in public investment, policies to prevent the currency from appreciating and a responsible fiscal stance to shore up economic growth amid Europe’s debt crisis, Mantega said this week.

Brazil’s central bank is scheduled to release the minutes of its Jan. 17-18 policy meeting tomorrow. The central bank has cut its benchmark interest rate 2 percentage points since August to 10.5 percent.