Brazil Credit Growth Slows in March to 1% as Rates Rise

Credit growth in Brazil’s economy slowed in March from February as interest rates that banks charge consumers rose.

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. Total credit rose 20.7 percent from a year ago.

Brazil’s average interest rate charged on consumer loans rose to 45 percent in March, up from 43.8 percent in February, the bank said. Average consumer default rates rose to 5.9 percent in March, from 5.8 percent in February.

The Brazilian government has been adopting measures to curb consumer credit growth since December, as it seeks to slow economic growth and tame inflation. 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.

Brazil raised reserve and capital requirements on some loans in December 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 The levy can be repealed when credit growth slows to an “adequate” level of 12 percent to 15 percent a year, Finance Minister Guido Mantega said April 7.
Futures Contract

The yield on the interest-rate futures contract due in January 2012, the most traded on Sao Paulo’s BM&F exchange today, rose 10 basis points, or 0.10 percentage point, to 12.31 percent at 10:50 a.m. New York time. The real fell 0.1 percent to 1.5641 per dollar.

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.

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.
First Deal

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.
Mix of Policies

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 said this week she’s “immensely worried” about accelerating prices and “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.