SAO PAULO, Jan 13 (Reuters) - Interest rate cuts will probably take longer than usual to boost economic growth in Brazil as a high debt load dampens confidence among families and businesses, economists said.
Forecasts for economic growth in 2017 remain just above zero after two years of sharp contraction, even after the central bank slashed rates by 75 basis points on Wednesday to 13 percent and suggested it would cut closer to single digits this year.
Economists say rate cuts in Brazil usually help boost growth within six to nine months of a central bank decision. However, this time, they say the lag could be longer as consumers and investors are opting to reduce their large debts before increasing demand for goods and services.
“Rate cuts are important, but their impact on demand for credit remains uncertain. Families are facing tough conditions,” said Livio Ribeiro, an economist with the Getúlio Vargas Foundation, a respected business school and think tank.
Over the past two years, central bank data has shown that more than 40 percent of household income was being used to pay off debt.
Furthermore, 48.7 percent of listed companies did not generate enough cash in the third quarter of last year to cover debt costs, up from 22.7 percent in 2010, according to business school and think tank Ibmec.
Another important reason for the small economic boost in the near term from lower interest rates is the fact that they are not expected to fall much in real terms when discounted for inflation, which has fallen sharply in Brazil.
Bank lending spreads are also very high, as banks usually grow more cautious in uncertain times. In November 2016, the latest data available, average spreads were 23.5 percentage points, 4.1 points higher than in the same period a year earlier.
“Families and companies depend on lower interest rates to renegotiate their debts,” said Alessandra Ribeiro, an economist with São Paulo-based consultancy Tendências. “Investment and consumption decisions will be postponed in this scenario.” (Reporting by Luiz Gerbelli; Editing by James Dalgleish)