On the negative side the country still misses a better coordination between monetary and credit markets. Public credit continues fueling the dynamism of credit markets, which restricts the space for implementing a laxer monetary policy. In line with this view, the Central Bank suggested recently in one of its communiqués the introduction of measures to moderate the concession of subsidized credit (a clear reference to credit supplied by the BNDES, the development public bank).
In contrast with other sectors, credit markets have barely moderated. The credit stock is growing around 20%y/y since the middle of 2010, and will surpass the CB’s 17%y/y forecast for overall expansion this year. In September, public credit grew 21.2%y/y, with no sign of moderation (21.4% y/y in Q1 2011). Also in September, private credit expanded 18.4%y/y, down from 19.9%y/y in the first quarter of the year (see chart below).
In spite of its resilience, one should expect to see credit markets to follow the overall tone of the economy and to ease. If that proves not to be the case, then the CB will have less space for implementing a laxer monetary policy, and the risks of overheating will increase.
In this context, and with additional reductions in the SELIC, expect to see more “macro-prudential” measures to keep credit markets under control.
Sources: Brazil Central Bank, Bloomberg, BBVA Research