Cutting the Costs of Lending
Aug 30, 2003
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 year....
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