On Monday (08/05), the National Bank for Economic and Social Development (BNDES) announced that it has doubled the credit limit per customer of its line dedicated to micro, small and medium-sized companies, from R$ 10 million to R$ 20 million per year. The announcement comes at a time when Lula’s government maintains a campaign of criticisms against the Central Bank (BC) for keeping the highest real interest rate in the world, approximately 8.15%. Now the central administration is trying to implement measures to reduce the impact of this monetary policy and fuel the national development with resources from the state bank.
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Private Banks
The decision comes at a time when the country’s banks have opted to focus their portfolios on segments with better risk profiles amidst an environment of high interest rates and uncertainties about economic growth. The bank’s objective is to reduce restrictions on access to credit for this group of companies and allow them to continue their business and maintain jobs.
Political Dispute
On 6 May, President Luiz Inácio Lula da Silva (PT) said that Central Bank President Roberto Campos Neto “has no commitment to Brazil”, but to the government of Jair Bolsonaro, “who appointed him”. Criticisms like this have become routine, since Neto has autonomy and, so far, has not reduced the country’s basic interest rate.
New Fiscal Framework
On Tuesday (09/05), Planning and Budget Minister Simone Tebet said that while the government fails to stabilize the public debt, “or signal in that direction”, it will not be possible to lower the interest rate in Brazil. On the same day, the Central Bank announced that approval by the National Congress of a well built and realistic fiscal framework could help fight inflation. For the committee, the proposal under date right now already reduced the uncertainty but it is necessary to monitor the debates and potential modifications that can be made to it.
Another Incentive
In addition to the credit lines and the new fiscal rule, the government decided on Tuesday (09/05) to zero the import tax on 564 machines and equipment used by industry in Brazil but manufactured abroad. There will also be no import tax on 64 IT and telecommunications items. The waiver will run through 31 December 2025 and responds to an industry request. According to government sources, more than 40 sectors of the economy will benefit, including: metallurgy; electricity and gas; auto-vehicles; machines and equipment; cellulose and paper.
Another Front
From now on, the arm wrestling to reduce the country’s interest rate will likely occur also inside the Central Bank. On Monday (08/05), Finance Ministry Executive Secretary Gabriel Galípolo was selected to the Central Bank’s monetary policy board. He is a trusted name not only for Haddad, Chamber President Arthur Lira, and President Lula.
The government wants to place Gilípolo at the presidency of the Central Bank before the end of 2024. For that, Campos Neto needs to anticipate his departure by six months. Despite his resistance, political pressure has increased, mainly in the Senate, which can determine the removal of the president of the BC under some circumstances.
Ailton Santos, a public servant and already member of the BC, is another man aligned with the government that was appointed to BC’s board. He can become an extra ally for reducing the interest rate.
