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Monetary tightening affects bank interest rates

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The simple signs that the Central Bank (BC) was gearing up to start a monetary policy tightening cycle has raised interest rates charged by banks to individuals and companies until February, data released Monday show.

The average rates on non-earmarked transactions with individuals increased to 40.1% a year from 39.5% a year. It was the second consecutive month of increase, since in December lenders charged 37.2% a year.

The costs of credit transactions with companies also became more expensive, although with ups and downs. From December to January they rose sharply, to 15.2% a year from 11.6% a year, due mainly to the banks' working capital operations with riskier clients. In February, they dropped to 13.8%, but remained above the level seen in December.

One factor that contributed to the higher interest rates was the increase, from December onwards, in the cost of raising funds for banks. In the case of fundraising for transactions with individuals, the rate went to 5.4% in January and 5.6% in February from 5.1% a year in December. As for companies, it went to 4.5% in January and 4.7% in February from 3.9% a year in December.

The data refer to non-earmarked transactions, which reflect more directly the financial conditions of the market, unlike directed loans, which has sources of funding with more favorable interest rates.

The Central Bank started to raise interest rates only in March, to 2.75% a year from 2% a year. But since December it started to signal that it might move, with a probable end to the "forward guidance," which was the promise to keep interest rates stable for a long time. In January, this tool was, in fact, lifted and the members of the BC's Monetary Policy Committee (Copom) started to discuss the best moment to start raising interest rates. All this discussion raised the yield curve negotiated in the market, which serves as a reference for the borrowers' funding.

"The basic interest rate sets the standard for other rates," said the head of the Central Bank's Statistics Department, Fernando Rocha, in the interview to present bank credit data. "In easing, all...

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