Interest Rates Set to Fall in Brazil According to Igor Purlantov

For many economists the recent continued fall in interest rates in Brazil to reasonable levels is a surprise given recent memories of hyperinflation. One example of this decrease in interest rates is the now somewhat bearable 51% rate on overdrafts which is down from 157% only one year ago. According to Igor Purlantov, customers should soon be seeing credit cards with monthly interest rates below 3%, versus 13% a little more than a year ago.

Although a lot of these drops in interest rates have come out of the commercial banking sector, the government is also trying to set the tone for decreased rates in the future. The Brazilian Central Bank has already made its sixth consecutive cut to its policy rate which is now at an all time low of 9%. This decrease is due in large part as a result of the government seeing an opportunity to continue current growth rates without a risk of higher inflation says Igor Purlantov.

Policy makers in Brazil are keen to point out that in order for these lower rates to be fully utilized, the large banks need to pass on the benefits to end consumers. Along with ordering banks to cut their rates and increase lending, the government is open to lowering reserve requirements as well as tax rates, and may also increase creditor rights. Together this should help to cut rates across the board and make its way down to the average consumer says Igor Purlantov.

This monetary policy has already caught the attention of Caixa Economica Federal, the regions fourth largest bank, as well as Banco do Brasil, who have both cut consumer credit rates recently. Despite these recent rate cuts, there is still room for further cuts as the margins between bank and borrowing costs and credit charges are still high at 30% says Igor Purlantov.

As commercial borrowing rates continue to decline, Brazil’s growth rate of only 4% should increase to levels comparable to its fellow BRIC members, including Russia, India, and China. According to Igor Purlantov, there is not much chance that interest rates will fall as low as other emerging markets given that Brazilian consumers have access to government savings accounts that offer tax free annual interest of 6.17% guaranteed by local law. Couple this with a low savings rate of only 16.5% and there many only be room for rates to fall by 2% more before the risk of higher inflation kicks in. Should inflation rise, it would force the central bank to reverse its course and raise rates which could slow down projected growth.