Brazil’s central bank on Friday allowed banks to set aside less capital for some consumer loans of up to five years, seeking to protect local credit markets from the impact of global financial turmoil.
Policymakers lowered the so-called risk factor by which lenders calculate the capital necessary to originate payroll-deductible, auto and other consumer loans to a range of 75 percent to 100 percent from a previous range of 100 percent to 150 percent.
For similar loans with longer maturities, the factor was raised to 300 percent, the bank said in a statement.
The bank kept unaltered a rule that sets the minimum monthly payment for credit-card purchases at 15 percent of the total value.
The measures came after policymakers began discussions last week over the partial or full removal of restrictions on bank lending — which at the time were dubbed as macroprudential measures — as the situation in Europe deteriorated.
Latin America’s largest economy, which expanded last year at the fastest pace in a quarter of a century partly because of a consumer credit boom, is slowing rapidly with demand for credit falling.
One source said that additional measures, including the elimination of the IOF transactions tax on stock trading, are under study.
The source, who declined to be named because of the issue’s sensitivity, said that Friday’s measures have an impact similar to that of a reduction in interest rates.
The decision marks a reversal in policy and underscores worries by the central bank and the government that the escalation of a sovereign-debt crisis in Europe could reduce liquidity and freeze Brazil’s credit market.
Early this year, the central bank hiked reserve and capital requirements on certain types of consumer credit and hiked taxes on some type of loans to individuals to slow red-hot growth in lending.
At the time, the bank said the move could help it fight a jump in consumer prices, which have been rising since April at the fastest pace in six years.
The macroprudential steps, which included an increase in reserve requirements, lifted banks’ operating costs considerably and made loans costlier for borrowers, the source added.
Some borrowers were taking on the most expensive types of credit like overdrafts and credit-card loans, to refinance their liabilities, the source said.
Policymakers likely eased requirements on shorter-termed loans because they could suffer from a surge in borrowing costs in the event of credit market fallout.
“The focus on economic growth is so strong ... that the central bank is clearly willing to sacrifice inflation expectations and push down the Selic [interest] rate and remove credit restrictions,” said Kathryn Rooney Vera, a macroeconomics strategist with Bulltick Capital in Miami.
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