Brazil’s central bank should consider unwinding measures that reduced credit in 2010 and 2011 to stimulate investments and lending that are being crimped by slower growth, said a government official with knowledge of monetary policy.
Easing credit restrictions could help offset pessimism about Brazil’s economic outlook, said the official who asked not to be named because the discussions aren’t public. Given bank loans are growing at a sustainable pace, liquidity could be increased to levels seen before 2010, he said.
Policy makers are trying to revive economic growth in the world’s second-biggest emerging market without further stoking above target inflation. Last week, after keeping interest rates unchanged at the highest level since 2012, the central bank injected 45 billion reais ($20 billion) into the banking system.
The central bank’s effort to control inflation by keeping the benchmark interest rate at a higher level aren’t at odds with macro-prudential measures aimed at increasing liquidity to temper excessive pessimism, the official said.
Brazil last month reduced reserve requirements that banks must keep at the central bank and eased capital requirements for some loans. The measures were announced the week after the bank’s board kept the Selic at 11 percent for a second consecutive meeting, after increasing it 3.75 percentage points over nine straight meetings in the 12 months through April.
Gross domestic product will expand 0.9 percent and inflation will hover around the 6.5 percent upper limit of the central bank’s target range this year, according to the median estimate of analysts surveyed by the central bank.
In December 2010, the central bank raised reserve and capital requirements, removing 61 billion reais from the credit market. Those measures were aimed mainly at curbing expansion of consumer loans with maturities longer than 24 months. Four months later a tax on consumer loans was doubled.
The central bank said it eased credit restrictions last month to reduce reserve requirements that more than doubled to 405 billion reais since 2009. The measures were also prompted by a drop in default rates and will help channel loans to small and medium size companies without fueling inflation, the government official said.
Outstanding lending expanded 11.79 percent in the year through June, the central bank said July 29. That compares to annual growth of 21.5 percent in April 2011.
Brazil’s inflation accelerated to 6.51 percent in the year through mid-July, the fastest pace in 13 months. The bank aims for 4.5 percent inflation plus or minus two percentage points.