New Guidelines for Credit

BRAZIL ECONOMICS - Report 13 Feb 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

An important change has occurred in the government’s orientation regarding credit. Less emphasis is being given to the use of official banks, which was a marked characteristic of the economic policy in the period after the international crisis, and was intensified under the so-called “New Economic Policy Matrix”. This has been replaced by resurgence of an old and important agenda of microeconomic reforms aiming to increase the portion of non-earmarked credit in detriment to earmarked credit, and a renewed effort to reduce the spreads.
In this Report we describe how efforts were previously being made to expand credit, predominantly through official banks, indicating some of the distortions introduced by this policy. We then briefly describe the Central Bank’s new agenda of microeconomic reforms, with the main objectives of reducing earmarked credit and cross-subsidies and causing a reduction of spreads. The ultimate goals of actions like these are to enhance the productivity of the financial system to help spur growth, and to increase the power of monetary policy, making an added contribution to lowering the neutral interest rate.

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