Brazil Interest Rates to Consumers Rise, Credit Jumps

Brazil’s average interest rates charged on loans to consumers rose in October for the first time in three months, signaling borrowing costs are escalating ahead of a central bank rate increase.

Outstanding credit in Latin American’s largest economy rose 1.9 percent in October from September, to a record of 1.64 trillion reais ($950 billion), led by a 3 percent increase in mortgage lending, the central bank said in a statement distributed today in Brasilia. Credit rose at the fastest pace since August, the central bank said.

The average interest rate charged on consumer debt rose in October for the first time in three months to 40.4 percent from 39.4 percent in September, as consumers relied less on payroll- deductible loans because of a strike at the state-controlled lender Caixa Economica Federal, Altamir Lopes, head of the central bank economic department, told reporters in Brasilia.

Fueled by record credit expansion, domestic demand is driving Brazil’s fastest growth in more than two decades, prompting policy makers to boost borrowing costs by two percentage points since April to prevent overheating.

The yield on interest rate future contracts due January 2011, the most traded on the Sao Paulo stock exchange today, fell 38 basis points, or 0.038 percentage point, to 10.72 percent at 9:15 a.m. New York time.

Bank President

Alexandre Tombini, the career public servant who helped devise Brazil’s inflation targeting regime in 1999, was chosen last week by President-elect Dilma Rousseff to replace central bank President Henrique Meirelles on Jan. 1.

Tombini, who must be approved by Congress to take over the monetary authority, said Rousseff granted him “total operational autonomy” to prevent inflation from rising above the government’s 4.5 percent target.

Brazil’s currency rose 0.07 percent today to 1.7291 per U.S. dollar at 8:28 a.m. New York time. The real has weakened 0.69 percent since the beginning of October.

Mortgage lending rose 3 percent to 129 billion reais in October from a revised 125.4 billion reais in September, the central bank said. The figure is up 51.5 percent from a year ago.

Credit rose to a record 47.2 percent of gross domestic product, from 46.7 percent in September. Credit will reach 48 percent of GDP by year-end, a 22 percent increase from 2009, Lopes said.

Loan Defaults

The total loan default rate was unchanged at 4.7 percent in October. The rate has fallen from 5.9 percent in August 2009. The company default rate was also unchanged at 6 percent, as was the personal loan rate at 3.5 percent.

Policy makers left the benchmark Selic rate at 10.75 percent for the second straight meeting on Oct. 21. The unanimous decision was forecast by all 51 analysts surveyed by Bloomberg. The central bank may raise the Selic to 12.25 percent by the end of next year, up from a week-earlier forecast of 12 percent, a central bank weekly survey of about 100 economists released today showed.

Itau Unibanco Holding SA, Brazil’s biggest bank by market value, said third-quarter profit climbed 18 percent as lending in Latin America’s largest economy rose to a record. Banco Bradesco SA, Brazil’s second-biggest bank by market value, said on Oct. 27 its adjusted net income increased 40 percent to 2.52 billion reais.

Banco do Brasil SA, Latin America’s biggest bank by assets, said third-quarter net income rose 33 percent as lending increased.

To contact the reporter on this story: Iuri Dantas in Brasilia at idantas@bloomberg.net

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

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