IMF commends macroprudential measures against inflation risks, credit growth

- Wednesday, August 3, 2011

IMF commends macroprudential measures against inflation risks, credit growth

The IMF has commended the macroprudential measures taken by Brazil's government in its efforts to contain inflationary risks and the fast pace of credit expansion, according to a statement from the multilateral after it finished its 2011 Article IV consultations rounds.

The fund also agreed on Brazil's "favorable overall financial soundness indicators."

The IMF welcomed tightening of monetary conditions by central bank BCB as "needed to meet its inflation target in 2012," noting that favorable prices in Brazil's key commodity exports, together with strong demand and tightening labor market conditions, pushed inflation to the top of the 2.5-6.5% inflation target band in May.

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As for credit growth, the fund acknowledged that the fast pace is part of the country's financial deepening, with the credit-to-GDP ratio rising from 24% in 2004 to 46% in 2010. But it also noted that loan growth is expanding rapidly, as private sector lending expanded 20% in April this year.

"Lending by private [sector] banks, which fell sharply during the [2008-09 global economic] crisis, has rebounded very strongly," the statement reads. "Meanwhile, public [sector] bank lending, which was ramped up during the crisis, also continues to expand at a rapid pace."

In its recommendations regarding this issue, the multilateral said "heightened vigilance" was needed against financial risks, noting that government measures have helped slowdown credit growth in some segments, but that such policies "may need to be applied more broadly to gain traction."