(Adds comments from BNDES CEO in paragraph 4)
By Alonso Soto
BRASILIA, March 31 Brazil's government surprised
investors by cutting the main rate for long-term corporate loans
to stimulate a faltering economic recovery, but vowed on Friday
to keep a lid on loan subsidies with a new benchmark linked to
In an announcement that caught markets off guard late on
Thursday, Brazil's highest economic policy body, CMN, cut the
TJLP long-term rate to 7 percent from 7.5 percent
for the second quarter.
At the same time, the government said it would issue a
decree to create a new long-term rate starting in 2018 to
gradually replace the TJLP. The new rate will be linked to the
IPCA inflation index and a fixed rate set monthly in accordance
to the returns of local inflation-linked bonds known as NTN-B.
"The new benchmark should translate into lower borrowing
costs for the economy as a whole, into a more effective monetary
policy and into an easier framework for the pricing and
securitization of those loans," said BNDES Chief
Executive Officer Maria Silvia Bastos Marques at a news
It was the first cut of the TJLP rate, the benchmark for
state development bank BNDES loans, since December 2012. The
BNDES is by far the main provider of long-term loans for
companies in Brazil.
For decades, the TJLP rate has run below the benchmark
overnight lending rate, partly because of an effort by
policymakers to boost growth and create jobs. However, the
implicit subsidy in these loans contributed to a sharp increase
in public debt, which cost Brazil its investment-grade rating.
"The government is acknowledging the dire situation of the
economy," said Andre Perfeito, chief economist at Gradual
Investimentos. "The government clearly thinks the economy will
continue to disappoint, but promises an overhaul of the TJLP
because it believes the economy will take off next year."
Economic activity fell more than expected in January after a
string of negative data released this week that points to an
even slower recovery after two years of recession, the deepest
in Brazil's history.
Central bank chief Ilan Goldfajn said the lower TJLP rate is
a consequence of falling risk premiums and benchmark Selic rate.
Goldfajn added that the new long-term rate, which will be
known as TLP, will not only reduce government subsidies but
strengthen monetary policy and bolster capital markets.
Since October of 2016, the central bank has reduced the
Selic rate by 200 basis points to 12.25 percent.
(Reporting by Silvio Cascione; Editing by Grant McCool and Lisa