A stronger performance by the BNDES could make the effectiveness of the Selic, against inflation, even more affected

The return of any strategy to strengthen the National Bank for Economic and Social Development (BNDES) could lead to a reduction in the power of the entire monetary policy and even be one more negative element for the entire challenge of the Central Bank (BC).

“The impact of operations with a subsidized rate will be greater or lesser depending on the volume of resources (which will be offered by BNDES)”, said the former director of BC and now member of the board of directors of BRF, Engepar and Cielo, Aldo Mendes. 

“If you expand the volume of subsidized credit a lot, there will be a reduction in the power of monetary policy, and this will require higher real interest rates”, said the former president of the BC and today chairman of the board of directors of Jive Investments, Luiz Fernando. 

Over the last two weeks, there have been several declarations by members of the government with the intention of expanding operations in this development bank, with the new financial director of the BNDES, Alexandre Abreu, signaling the possibilities for the bank to readjust the volume of disbursements of 0,7% of Gross Domestic Product (GDP), to something like 2% of GDP. 

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The new president, on his first trip abroad as head of state, also said that the development bank will once again finance engineering projects in order to help Brazilian companies abroad. 

Selic rate

Credit is one of the main transmission channels through which monetary policy affects prices in the economy, since the change in Selic rate further drives down borrowing costs, inhibiting all investment and consumption. 

However, the size of every share of subsidized credit changes the scope of monetary policy. For another former BC, who preferred anonymity, one of the great risks would be the change in the current rate charged in relation to BNDES financing, the Long Term Rate (TLP), to the old Long Term Interest Rate (TJLP), which was still set by the government. Therefore, if the bank raises resources at market rates and even lends all these resources at a lower interest rate, as was the case with the TJLP, this difference would still have to be covered by the National Treasury. 

The director of the BNDES, Abreu, stated that one of the paths is the combination of international funding, with lower rates, and domestic funding, with higher rates. The use of resources from the Worker's Support Fund (FAT) may even bring the TLP even closer to the Selic rate. 

Figueiredo also made the statement that, when the BNDES made the reduction of financing activities for large companies with all the subsidized money, there was also a positive reflection on the entire monetary policy. “It helped to have a longer term with a very low interest rate,” he said.