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Brazil may peg farming loans to benchmark rate, paper says
March 16, 2017 / 12:00 PM / 6 months ago

Brazil may peg farming loans to benchmark rate, paper says

SAO PAULO, March 16 (Reuters) - The Brazilian government is considering pegging borrowing costs on farming loans to the benchmark overnight Selic interest rate in another step toward reducing costly credit subsidies, newspaper Valor Econômico said on Thursday.

According to Valor, which did not say how it obtained the information, policymakers would fix at 85 percent the weight of the Selic on interest charged on farming loans. Several types of farming credit bear a 50 percent to 70 percent Selic component, the newspaper said.

The changes will only take place if the Selic goes down below an annual 10.5 percent and the cost of earmarked credit for farmers falls by at least 1 percentage point in coming months, Valor reported. Earmarked credit is a modality of lending in which commercial banks must make loans to sectors the government deems strategic.

The Finance Ministry did not immediately answer calls for comment.

The Selic is at 12.25 percent, above an all-time low of 7.25 percent set between October 2012 and April 2013.

Still, a weekly central bank survey of more than 100 economists shows expectations that policymakers could accelerate the pace of cuts at their next meeting in April and drive rates down to an average 8.75 percent by the end of next year.

The move may be the latest step by President Michel Temer’s administration to reverse decades of subsidies that have cost taxpayers trillions of reais without a significant effect on long-term growth.

Reporting by Guillermo Parra-Bernal; Editing by Lisa Von Ahn

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