BRASILIA -(Dow Jones)- Borrowing costs in Brazil will decline naturally in coming periods in the wake of recent government moves to lower interest rates in the country, Deputy Finance Minister Nelson Barbosa said Friday.
Speaking in an interview on Brazil's CBN radio network, Barbosa said the measures, including a move this week to alter savings account rules, would allow Brazil's central bank to cut local interest rates "as far as it thinks it should" and help bring down high loan costs.
"While the Selic rate declines, the cost of financing loans will fall and competition between banks will assure that this gain will be passed on to borrowers," Barbosa said.
Brazil's government Thursday altered the earnings calculation for the country's savings accounts so as to allow the central bank to continue reducing its benchmark Selic interest rate.
The government said that effective immediately, savings accounts would be remunerated at a rate equivalent to 70% of the Selic rate whenever that rate falls below 8.5% annually.
Previously, savings accounts were remunerated at a fixed rate of 6.17% annually, plus a variable rate of between 0.5% and 2.0%.
The government said the change was necessary to prevent a large migration of investment from government debt securities earning the Selic rate into savings accounts once the Selic declines to below 8.5%. Brazil's central bank has cut the Selic rate by 3.5 percentage points since August to a current 9%.
Some analysts believe that if conditions allow the bank could reduce the rate to as low as 8% by the end of this year.
But despite recent Selic rate reductions, interest charges on loans in Brazil remain among some of the highest in the world. As of March, the average interest rate paid on all loans in Brazil stood at 37.7% annually.
The rate for individual borrowers was 44.4%, while the rate for businesses was 27.7%. Barbosa, however, said he believed the problem of high loan costs could begin to change in coming months.
"There is room for a larger decline of bank spreads, because there's room for greater credit growth," he said. "With the spreads falling, bank profits won't necessarily be hurt because banks can lend more and earn with larger lending volume."
Barbosa also said the government wasn't greatly concerned that expanding credit in the country would lead to growing loan default rates.
"It's important to remember that loan defaults also depend on the interest rate," he said. "What we foresee in the coming years is the reduction of interest rates and this is going to inevitably lead to lower default rates."
In the meantime, the finance ministry official said the government was looking forward to tame inflation conditions ahead that should allow the central bank to continue easing the Selic rate.
"Our expectation is that inflation declines to below 5%, something around 4.7%, at the end of the year and continues to move toward the 4.5% center point of the target range in 2013," he said.
At the same time, Barbosa said recent stimulus measures had already begun to spur the economy and that the government expected growth would accelerate to between 5% and 6% annually by the end of the year.
Brazil's economy grew by only 2.7% in 2011 after expanding by 7.5% in 2010.
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Speaking in an interview on Brazil's CBN radio network, Barbosa said the measures, including a move this week to alter savings account rules, would allow Brazil's central bank to cut local interest rates "as far as it thinks it should" and help bring down high loan costs.
"While the Selic rate declines, the cost of financing loans will fall and competition between banks will assure that this gain will be passed on to borrowers," Barbosa said.
Brazil's government Thursday altered the earnings calculation for the country's savings accounts so as to allow the central bank to continue reducing its benchmark Selic interest rate.
The government said that effective immediately, savings accounts would be remunerated at a rate equivalent to 70% of the Selic rate whenever that rate falls below 8.5% annually.
Previously, savings accounts were remunerated at a fixed rate of 6.17% annually, plus a variable rate of between 0.5% and 2.0%.
The government said the change was necessary to prevent a large migration of investment from government debt securities earning the Selic rate into savings accounts once the Selic declines to below 8.5%. Brazil's central bank has cut the Selic rate by 3.5 percentage points since August to a current 9%.
Some analysts believe that if conditions allow the bank could reduce the rate to as low as 8% by the end of this year.
But despite recent Selic rate reductions, interest charges on loans in Brazil remain among some of the highest in the world. As of March, the average interest rate paid on all loans in Brazil stood at 37.7% annually.
The rate for individual borrowers was 44.4%, while the rate for businesses was 27.7%. Barbosa, however, said he believed the problem of high loan costs could begin to change in coming months.
"There is room for a larger decline of bank spreads, because there's room for greater credit growth," he said. "With the spreads falling, bank profits won't necessarily be hurt because banks can lend more and earn with larger lending volume."
Barbosa also said the government wasn't greatly concerned that expanding credit in the country would lead to growing loan default rates.
"It's important to remember that loan defaults also depend on the interest rate," he said. "What we foresee in the coming years is the reduction of interest rates and this is going to inevitably lead to lower default rates."
In the meantime, the finance ministry official said the government was looking forward to tame inflation conditions ahead that should allow the central bank to continue easing the Selic rate.
"Our expectation is that inflation declines to below 5%, something around 4.7%, at the end of the year and continues to move toward the 4.5% center point of the target range in 2013," he said.
At the same time, Barbosa said recent stimulus measures had already begun to spur the economy and that the government expected growth would accelerate to between 5% and 6% annually by the end of the year.
Brazil's economy grew by only 2.7% in 2011 after expanding by 7.5% in 2010.
nasdaq.com
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