Brazil Borrowing Costs at Lowest Since December 2007
Brazil’s average interest rate for consumers and companies fell to the lowest since December 2007 last month as banks stepped up lending amid declining defaults.
The average interest rate on bank loans dropped to 34.9 percent from 35.6 percent in October, the central bank said today in a report issued in Brasilia. It’s the lowest since an average 33.8 percent in December 2007. Rates on consumer loans touched the lowest on record, Altamir Lopes, the head of the central bank’s economic department, told reporters in Brasilia.
“The perception of lower risk is the main reason for that result, but the reduction of reserve requirements and increasing competition among banks are also influencing it,” said Roberto Padovani, senior strategist at WestLB do Brasil in Sao Paulo. “Average interest rates should continue to fall for the next six months before stabilizing.”
Brazil emerged from its first recession since 2003 in the second quarter after central bank policy makers made five straight cuts in the benchmark interest rate to a record low of 8.75 percent. President Luiz Inacio Lula da Silva has publicly pressed state and private banks to expand credit to consumers and companies to sustain demand, keep investment in public works and help meet the government’s target of building 1 million homes.
Personal Defaults
The personal default rate in Brazil fell to 8.1 percent in November, from 8.2 percent in the previous month, the bank said, the lowest level since last year.
Total outstanding loans expanded 1.5 percent in November to 1.39 trillion reais ($800 billion) from a revised 1.37 trillion reais the previous month, the central bank said. That figure expanded 1.5 percent in the December 1-15 period, Lopes said.
Total outstanding credit will reach 48 percent of gross domestic product by the end of next year, after touching 45.3 percent this month, the central bank’s director of economic policy, Mario Mesquita, said Dec. 22.
After pumping 100 billion reais into the state development bank, the Brazilian government pledged another injection of 80 billion reais into the bank, known as BNDES, to ease credit conditions for infrastructure projects and other investment.
The economy will expand as much as 5.8 percent next year, fueling inflation above the government’s target of 4.5 percent, the central bank said in a report earlier this month.
Brazil’s non-state banks will be able to issue domestic debt as a way to raise funds, Finance Minister Guido Mantega said Dec. 9. The new paper, which needs to be approved by the central bank’s monetary council, will reduce costs and allow private lenders to compete for long term loans, Mantega said.