Political Risk Latin America Blog @PolRiskLatam

Brazil plans to cut subsidized long term loans to combat inflation

Posted in News and Articles, Political Risk by politicalrisklatam on December 1, 2010

by Merco Press News, December 1st, 2010.

Brazil plans to cut funding for its state development bank by 50% in 2011 in an effort to bring down the world’s second-highest inflation-adjusted interest rates. The reduction in loans the government provides to BNDES, as the bank is known, forms part of a plan to curb public spending, Finance Minister Guido Mantega said in an interview in Brasilia.

Mantega, who was kept at his post by president-elect Dilma Rousseff, is seeking to cut subsidized lending that helped push inflation to a five-month high of 5.2% and drive up local borrowing costs.

Brazil is paying 965 basic points more to borrow locally than abroad to the extent that the country’s local debt yields more than that of Greece and Ireland which are receiving aid from the European Central bank and the IMF. The Brazilian central bank is expected to begin rising the benchmark interest rate as soon as its December 8 meeting and could reach 12.5% by the end of 2011.

Rousseff’s government will cut the loans it provides to Rio de Janeiro-based BNDES from 104.7 billion Real (61.1 billion US dollars) in 2010. It may also freeze more than 20 billion Real of the 2011 budget, Mantega said.

Lending by the bank, which provides subsidized credit for long-term projects is contributing to the fastest economic growth in more than two decades. Latin America’s biggest economy will expand 7.6% this year after shrinking 0.2% in 2009, according to the median forecast in a central bank survey of economists published Nov. 29. (continue reading… )


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