Cutting the Costs of Lending
Wildly expensive credit persists in Brazil. The country's banks need to lower their costs to narrow spreads and expand vitally needed lending.
The arrival of a Workers Party government led by Luis
Inácio Lula da Silva, baying for the blood of
millionaire "speculators" who had enriched themselves at the
people's expense, was a Brazilian banker's worst nightmare.
Lula's government has turned out to be very different,
following promarket policies that it hopes will eventually
bring down interest rates. However, the Finance Ministry under
the command of a pragmatic, technocratic team, says there is a
lot that can be done to reduce rates in the meantime by making
the financial system more efficient. It says the high interest
rates - both in nominal and real terms - that banks charge for
loans is a serious obstacle to growth and it plans a number of
measures to deal with the problem. The gap between inflation
and the CDI interbank rate has averaged 1.04 percentage points
a month since 1998. Even though inflation is flat, the central
bank has set its base Selic interest rate at a crushing 22% a
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