Brazil’s Consumer Loan Rate Drops to Lowest Level Since 1994

Brazil’s interest rates on consumer loans fell in August to the lowest level since 1994, while default rates remained the highest in almost three years in the largest emerging market after China.

Average rates on consumer loans fell to 35.6 percent from 36.2 percent, the central bank said in a report distributed today in Brasilia. The average is the lowest since the bank began monitoring the number in 1994. Rates on corporate loans fell to 23.1 percent from 23.6 percent, while the average rate on loans fell to 30.1 percent from 30.7 percent in July.

Government officials led by President Dilma Rousseff have expanded measures aimed at spurring credit growth while helping indebted consumers. Earlier this month, the government reduced bank reserve requirements to free up 30 billion reais ($14.8 billion) in credit. This month, federally controlled Caixa Economica Federal cut rates on its credit card used for home remodeling, and offered new payment grace period options.

Since August 2011, policy makers have also cut benchmark interest rates by 500 basis points to a record low 7.5 percent, extended tax cuts on consumer goods and pressured commercial banks to lower lending rates. This week, Osasco, Brazil-based Banco Bradesco (BBDC4) SA announced plans to reduce by half interest rates charged on its credit cards. The bank’s preferred stock fell 6.64 percent yesterday on the Sao Paulo exchange.

The stimulus measures may be gaining traction. Consumer confidence rose in August for the first time in five months. Retail sales in July beat economists’ forecasts and rose at the second-fastest pace since January, while vehicle sales reached a record high in August.

Consumer Default

Even as average loan rates fell, the consumer default rate in August was 7.9 percent, unchanged from July and the highest since 8 percent in November 2009. The company loan default rate rose to 4.1 percent from 4 percent a month ago.

The consumer default rate will decline by year-end as wage growth and more caution on the part of banks help to ease indebtedness, Tulio Maciel, head of economic research at the central bank, said to reporters today.

Outstanding credit rose 1.2 percent in August from the same month last year to 2.2 trillion reais ($1.1 trillion), the central bank said today. Credit expanded 17 percent from a year ago. The central bank boosted its forecast for credit growth this year to 16 percent from 15 percent, Maciel said.

Swap rates on the contract maturing in January 2014 fell one basis point, or 0.01 percentage point, to 7.72 percent at 3:23 p.m. local time. The real declined 0.2 percent to 2.0338 per dollar.

Brazil’s economy expanded at an annualized 1.64 percent in the second quarter, less than the U.S. and Japan. This month, Finance Minister Guido Mantega reduced his 2012 growth forecast to 2 percent from 3 percent, adding that the economy will expand more than 4 percent next year. Economists in the latest weekly central bank survey predicted growth of 1.57 percent this year.

To contact the reporters on this story: Matthew Malinowski in Santiago at mmalinowski@bloomberg.net; Raymond Colitt in Brasilia at rcolitt@bloomberg.net

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

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