Brazil Said to Study Removal of Credit Curbs to Boost Economic Growth

Brazil’s government is debating whether to remove credit restrictions imposed in the last 11 months as President Dilma Rousseff seeks to shore up economic growth, according to a government official familiar with the talks.

Rousseff’s administration is concerned that Brazil may slip into technical recession — two consecutive quarters of contraction — and is considering ways to avoid slower growth, said the official, who asked not to be identified because the matter is still under discussion. The Finance Ministry and the central bank declined to comment.

Brazil increased reserve and capital requirements, doubled a tax on consumer loans and increased the overnight rate this year as part of a plan to slow domestic demand that helped spur the fastest inflation in six years. Since August, the central bank has reversed course and twice slashed the benchmark interest rate to protect Latin America’s biggest economy from slower growth in Europe, the U.S. and China.

“The government is very concerned with the contractionary impact of slower global growth,” Newton Rosa, chief economist at SulAmerica Investimentos, said in a phone interview from Sao Paulo. “If it sees demand cooling too fast, removing credit restrictions a bit could be in its plans.”

To be sure, Rosa said it’s too early to lift measures to slow the pace of credit growth, given banks are still expanding loans at a “very good pace.”
Expanding Credit

Credit expanded in September at its fastest pace this year, led by loans from state-controlled banks such as BNDES and Caixa Economica Federal, according to an Oct. 26 central bank report.

Outstanding credit rose 2.1 percent to 1.93 trillion reais ($1.1 trillion) last month, after a 1.8 percent increase in August, the central bank said in a report distributed today in Brasilia. Credit expanded 19.6 percent from a year earlier, above the bank’s preferred 17 percent pace.

The government may also consider granting tax breaks to some industries to stimulate output and job creation, the official said. The government will take measures if third- quarter gross domestic product shows a significant drop in economic activity, he said.

Brazil’s economy will expand 3.5 percent this year, down from 7.5 percent in 2010, according to central bank estimates.

“Economic activity is very far from recession,” Jankiel Santos, chief economist at Espirito Santo Investment Bank, said in a phone interview from Sao Paulo. “It seems hasty to talk about recession when inflation is running at 7.3 percent a year.”

Finance Minister Guido Mantega said in an interview with Globo News TV today that Brazil is bold enough to use all the tools at its disposal to prevent a crisis from spreading to the country. In a 90-second preview clip, Mantega didn’t elaborate on what measures the government might take.

The real weakened 2.6 percent to 1.7789 per dollar.