Brazil Credit Expands at Second-Slowest Pace in 13 Months
Brazil’s bank lending expanded in March at the second-slowest pace in 13 months as the government stepped up efforts to contain demand and inflation by curbing credit to consumers.
Total outstanding credit rose 1 percent in March to 1.75 trillion reais ($1.11 trillion) from a revised 1.73 trillion reais in February, down from a 1.3 percent increase in the previous month, the central bank said in a report distributed today in Brasilia. The average interest rate charged on consumer loans rose to 45 percent in March, up from 43.8 percent in February, the bank said.
Brazil’s government since December has taken steps to curb consumer credit growth, including higher interest rates, as it seeks to slow economic growth and tame the fastest inflation in 29 months. Annual credit growth will slow to 13 percent by year- end from 20.7 percent in March, which will help rein in consumer prices, Tulio Maciel, head of the central bank’s economic department, told reporters today.
“Today’s figure reinforces the thesis that macro- prudential measures can reduce the vigor of credit growth,” Zeina Latif, Latin America macro strategist at RBS Securities Inc., said in a phone interview from Sao Paulo. “But it would be a mistake to believe the accommodation of credit growth as seen is enough to bring inflation back to target. It is necessary to keep raising the benchmark rate.”
The yield on the interest-rate futures contract due in January 2012, the second-most traded on Sao Paulo’s BM&F exchange today, rose one basis point, or 0.01 percentage point, to 12.31 percent. The real fell 0.3 percent to 1.5665 per dollar.
Credit figures confirm “a positive trend” with a slowdown in the pace of loans granted by the state development bank, according to a note sent to clients by Enestor dos Santos, senior Brazil economist for BBVA in Madrid. Credit from BNDES grew at a monthly average of 0.5 percent in the first quarter, down from 2 percent a year ago, he said.
“This moderation suggests that the BNDES will contribute to the government’s efforts to control credit growth and overall overheating risks,” Santos said. “This follows a very strong expansion observed since the beginning of the crisis, which was initially very helpful in supporting Brazil’s recovery but now very harmful given the excessive dynamism of credit markets in an environment where the economy has been overheating.”
Policy makers slowed the pace of interest rate increases last week, raising the benchmark Selic rate by 25 basis points, after 50 basis-point increases at each of their two previous meetings this year.
President Dilma Rousseff’s administration also raised reserve and capital requirements on some loans in December, increased a tax on foreign loans, and doubled to 3 percent a tax on consumer credit this month in a bid to slow inflation and contain domestic demand.
The levy can be repealed when credit growth slows to an “adequate” level of 12 percent to 15 percent a year, Finance Minister Guido Mantega said April 7.
Average concessions of new loans to consumers fell 5.4 percent in the first 12 days of April after the government raised the tax, Maciel said.
Latif expects the central bank to increase the benchmark rate by 0.25 percentage points in each of its next two meetings.
‘Justify the Decision’
“The slower expansion of credit will be used by the government to justify the decision to slow the pace of rate increases,” Andre Perfeito, chief economist at Gradual Investimentos, said in a phone interview from Sao Paulo.
He forecasts policy makers will keep interest rates unchanged in their next meeting.
Fueled by expansion of credit and job creation, domestic demand helped Latin America’s biggest economy grow 7.5 percent last year, the fastest growth in more than two decades. Growth will slow to 4.5 percent this year, Mantega told reporters yesterday.
Central bank President Alexandre Tombini told lawmakers March 22 that consumer credit growth above 15 percent needs to be monitored closely. The bank “will make the adjustments that are needed to prevent imbalances from arising,” Tombini said.
Economic expansion is prompting Brazilian banks to offer more financial services and acquire other institutions. Banco do Brasil SA (BBAS3), Brazil’s biggest state-controlled lender, may make more acquisitions in the U.S. after agreeing to buy Florida- based Eurobank for $6 million, the bank said April 25.
Itau Unibanco Holding SA (ITUB4), the biggest Brazilian bank by market value, agreed on April 14 to pay 725 million reais ($465 million) for a 49 percent stake in Banco CSF SA, Carrefour SA (CA)’s financial unit in the country.
Banco Bradesco SA (BBDC4), Brazil’s second-largest bank by market value, plans to complete in the next three months its first deal from a 2 billion-real fund created this year to invest in local companies. The Osasco-based bank is in advanced talks over an investment in the oil and gas industry, Fernando Buzzo, head of its private-equity division, said March 31.
Andre Esteves, the Brazilian billionaire who owns Banco BTG Pactual SA, said Feb. 22 he is betting on companies that serve Brazil’s growing middle class. He acquired Banco Panamericano SA (BPNM4), a Sao Paulo-based consumer lender that had to be bailed out in November in the wake of accounting fraud allegations.
The task of slowing inflation back to target next year will require a “prolonged” and “incisive” effort, Tombini said yesterday. Consumer prices in Brazil are being fueled by a jump in commodity prices and by domestic factors as well, Tombini said. Services inflation has remained high, reflecting a heated economy, he said.
The central bank will rely on a mix of policies, which include higher interest rates, spending cuts and measures to curb credit, to slow inflation back to the midpoint of its target range next year, policy makers said in their quarterly inflation report March 30.
Brazil targets an annual inflation rate of 4.5 percent, plus or minus two percentage points.
Brazilian President Dilma Rousseff this week said she’s “immensely worried” about accelerating prices and is “committed to controlling inflation,” as her government is ready to take measures whenever necessary. Brazil has demand pressures that should be controlled, she said.
Consumer prices accelerated to 6.44 percent in the year through mid-April, the fastest pace since November 2008. Inflation may surpass the 6.5 percent upper limit of the target between July and August this year, the central bank’s director of economic policy, Carlos Hamilton, said last month.
Economists lifted their 2011 inflation forecast for the seventh straight week to 6.34 percent, from 6.29 percent a week earlier, according to an April 20 central bank survey of about 100 economists.
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