Bloomberg News

Brazil Boosts Purchases, Cuts-Long Term Rate to Fuel Growth

June 27, 2012

Brazilian Finance Minister Guido Mantega

Brazilian Finance Minister Guido Mantega. Photographer: Andrew Harrer/Bloomberg

Brazil’s government plans to buy over a third of the country’s output of buses and reduce borrowing costs for state-funded investments to a record as part of a new round of measures to revive stalled growth.

The long-term reference rate for loans from the BNDES state development bank will be cut to a record 5.5 percent from 6 percent, Finance Minister Guido Mantega said today. The government will also increase purchases of trucks, buses, ambulances, defense equipment and tractors by 6.6 billion reais ($3.2 billion) in the second half of the year, he said.

In just over a month, analysts have shaved more than one percentage point off their 2012 growth estimate for Brazil, lowering it to 2.18 percent, according to a central bank survey released June 25. Economists predict the biggest emerging market after China will slow for a second straight year even as the government has cut interest rates, granted tax breaks on industrial and consumer goods and provided more subsidized credit. The economy grew 2.7 percent last year after expanding 7.5 percent in 2010.

“Brasil is one the countries that will withstand this crisis because we opted for a development model that relies on the strength of the Brazilian economy, of our domestic market and in the strength of our workers and entrepreneurs,” President Dilma Rousseff said today at an event in Brasilia.

Confidence Measure

Marcopolo SA (POMO4), a Brazilian truck and bus body manufacturer, rose 6.5 percent to 8.65 reais at 11:44 a.m. in Sao Paulo after the government said it plans to buy 8,570 buses in the second half of 2012, the equivalent of 36 percent of projected output, according to the Finance Ministry. The purchases will cost the government 1.7 billion reais.

The government will also buy 8,000 trucks, 7,971 tractors and construction vehicles and 2,125 ambulances as part of the plan.

“This isn’t the first measure and won’t be the only one to be taken by the government,” Mantega told reporters in Brasilia. “It’s very important to keep confidence in place. Without confidence, business leaders don’t invest and people don’t buy because they’re afraid of losing their job.”

The moves follow a 65 billion-real stimulus package announced in April that included tax cuts and more subsidized credit.

Growth Outlook

“This is one more attempt to boost confidence. It is about showing that the government isn’t standing by idly, especially regarding sectors that are doing poorly,” said Solange Srour, chief economist at BNY Mellon ARX, in a phone interview from Rio de Janeiro. The measures announced today “won’t change the economic growth outlook.”

The real has dropped 10.5 percent this year, the worst performance among the 16 most traded currencies tracked by Bloomberg. The real declined 0.5 percent to 2.0859 per U.S. dollar at 12:03 p.m. local time.

Sales of trucks plunged 29 percent in May from a year ago, according to Brazil’s automakers association, known as Anfavea. Bus sales fell 20 percent in the same period, according to the association.

Since August, central bank President Alexandre Tombini has reduced the overnight rate by 400 basis points to a record 8.5 percent in a bid to shield the economy from the euro debt crisis. Traders expect the rate to fall to at least 7.75 percent this year, according to interest rate futures.

The long-term reference rate, known as TJLP, had remained at 6 percent since July 2009.

‘Structural Change’

“Both the interest rate cuts and the weak exchange rate are going to continue, spurring an important structural change in the economy” Mantega told reporters in Brasilia. “This process hasn’t ended, it’s only beginning and will continue over the coming months.”

The yield on the interest-rate futures contract maturing in January 2013, the most traded in Sao Paulo today, was unchanged at 7.65 percent.

Brazil’s industrial output contracted 0.2 percent in April after falling 0.5 percent in March even as the government increased its efforts to boost growth.

In May, Brazil’s consumer loan default rate rose to 8 percent, the highest in 30 months, reinforcing concern that households struggling with debt could further dent Brazil’s credit-driven growth model.

Tombini said on June 12 that default rates would fall throughout 2012 and help fuel an economic recovery as lower interest rates, rising wages, and low unemployment levels bolster household income.

To contact the reporter on this story: Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net; Carla Simoes in Brasilia Newsroom at csimoes1@bloomberg.net

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


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