Bloomberg News

Brazil’s Bank Lending Expands at Slowest Pace in Two Years

March 27, 2012

Brazil’s bank lending expanded last month at the slowest pace in two years, providing support to the central bank’s strategy of cutting borrowing costs to close to near-record lows to revive growth.

Outstanding credit rose 17.3 percent in February from a year ago to 2.03 trillion reais ($1.1 trillion), the central bank said in a report distributed today in Brasilia. From a month ago credit rose 0.4 percent after declining a revised 0.1 percent in January.

Policy makers signaled this month they plan to reduce the benchmark interest rate to 9 percent this year, a quarter of a point above its record low, after economic growth in the world’s sixth biggest economy slowed to 2.7 percent last year from 7.5 percent in 2010.

Today’s report “is in line with the outlook the central bank expects,” Luciano Rostagno, chief strategist at Banco WestLB do Brasil SA, said in a phone interview from Sao Paulo.

The yield on interest rate future contracts maturing in July 2012, the most traded in Sao Paulo, fell two basis points to 9.01 percent at 10:54 a.m. local time. The real strengthened 0.3 percent to 1.8110 per U.S. dollar.

Since August, President Dilma Rousseff’s administration reduced the overnight rate five times, cut taxes on consumer goods and lifted measures to constrict credit in a bid to accelerate economic growth to at least 4.5 percent this year.

Inflation Concerns

With unemployment near a record low and wages rising, analysts are skeptical central bank president Alexandre Tombini will succeed in bringing inflation back to the 4.5 percent target this year and next, according to a central bank survey.

Consumer prices will rise 5.28 percent in 2012 and 5.5 percent in 2013, according to the median estimate of the survey published March 26.

Economic growth will accelerate in the second half of the year, and inflation is slowing toward the target, Tombini wrote yesterday in a presentation posted on the bank’s website.

The average interest rate charged on consumer loans rose to 45.4 percent from 45.1 percent in January, the central bank said. The average rate on company loans fell to 28.6 percent from 28.7 percent.

The consumer default rate was unchanged from January at 7.6 percent, the highest since December 2009, while for company loans it stayed at 4.1 percent.

To contact the reporters on this story: Matthew Bristow in Brasilia at mbristow5@bloomberg.net Andre Soliani in Brasilia at asoliani@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.


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