Brazil’s Finance Minister Guido Mantega is calling on private banks to increase lending as the government rolls back stimulus measures following its first sovereign credit downgrade in a decade.
“If you look at the situation of credit in the country, there’s a lack of credit for consumers,” Mantega said yesterday in an interview on state-owned television channel TV Brasil. “Private banks aren’t freeing up credit.”
Policy makers are struggling to stimulate the economy ahead of October presidential elections without causing fiscal accounts to deteriorate. Dilma Rousseff’s government, which has delivered the slowest growth of any Brazilian leader in more than two decades, pledged to cut spending from the budget less than a month before Standard & Poor’s lowered Brazil’s rating to a step above junk.
While private banks are starting to join their public counterparts to help finance infrastructure projects, the private lenders are hindering economic growth by limiting loans to consumers, Mantega said. Outstanding loans from public banks exceeded the private sector in March as private lenders such as Itau Unibanco Holding SA (ITUB4) reported a 24 percent drop in its automobile business during the first quarter from last year.
“Private banks have to participate more,” Mantega said. “It costs us” for lenders such as state development bank BNDES to increase credit, he said.
Brazilian banks are in talks with the government about creating an insurance fund to guarantee car loans amid a drop in automobile sales, Itau’s head of investor relations, Marcelo Kopel, said in a conference call with analysts April 30. Car sales declined 15 percent to 240,808 units in March from a year earlier, according to Anfavea, Brazil’s automaker association.
The government is pulling back on some of its stimulus measures as the impact of the global economic crisis wanes, Mantega said yesterday. The minister in February said the government would cut 44 billion reais ($20 billion) from this year’s budget.
S&P in March reduced its rating on Brazil one level to BBB-, citing sluggish economic growth and deteriorating fiscal accounts. Brazil is rated BBB by Fitch Ratings and an equivalent Baa2 by Moody’s Investors Service, which in October cut its outlook on the rating to stable from positive.
While Brazil’s primary surplus, which excludes interest payments, has expanded since the start of 2014 to 1.75 percent of gross domestic product in the year through March, it is still shy of the government target of 1.9 percent of GDP for this year, the central bank reported April 30.
Gross domestic product expanded an annual average of 2 percent during Rousseff’s first three years in office and will slow to 1.63 percent in 2014, according to analysts polled on May 2 by the central bank. They forecast inflation will accelerate to 6.5 percent this year.
Annual inflation in April quickened to 6.41 percent from 6.15 percent the month prior, according to the median estimate of 31 economists surveyed by Bloomberg. The national statistics agency is scheduled to publish the official inflation figure on May 9.
Policy makers target 4.5 percent inflation, plus or minus two percentage points. While a target closer to 3.5 percent or 3 percent is possible in the future, it isn’t realistic now, Mantega said yesterday.
Consumer price pressures will ease as food costs fall, he said, adding that the government supports central bank autonomy and its efforts to contain inflation. Policy makers since April last year have lifted the benchmark Selic interest rate by 375 basis points from a record low to 11 percent.
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