SAO PAULO, April 19 (Reuters) - Declining borrowing costs in Brazil will help local companies cut their debt and speed up refinancing efforts with creditors, even if they fail to jump-start economic growth in the short run, Moody’s Investors Service said in a report on Wednesday.
The central bank’s rate-reduction cycle should have the immediate effect of alleviating the burden of companies struggling with large chunks of real-denominated debt, the report said. Brazilian companies pay the highest borrowing costs among the world’s major economies.
Policymakers lowered the benchmark Selic rate this month by 100 basis points to 11.25 percent, the biggest reduction since June 2009. They had made cuts totaling 3 percentage points at the last four meetings.
Still, a robust credit revival hinges on how demand reacts after almost three years of recession, analysts led by Barbara Mattos said in the report. Banks will remain wary of giving out new credit without “tangible indications of economic growth and policy continuity,” the report added.
“We see only small short-term effects on credit supply and demand, both for investment and consumption, gaining momentum only gradually,” the report said.
The report underscores the reigning view among analysts that a recovery of credit in Brazil, which is in its deepest recession in more than a century, requires that individuals and companies first cut their debt burden further over the next year or so.
Banks are scheduled to unveil first-quarter results next week, with analysts expecting them to keep a lid on consumer delinquencies and raise loan-loss provisions at a slower pace than in prior quarters. Last year, Brazilian banks reported lower profits for the first time in at least 15 years.
According to the analysts, companies will use any excess cash to pay down debt, while banks will curb loan disbursements until at least year-end 2018.
In a second wave, credit supply and demand will rise once deleveraging is complete and the economy returns to growth amid low inflation and cheap borrowing costs, the report said. (Reporting by Guillermo Parra-Bernal; Editing by Bill Rigby)