BRASILIA, April 8 (Reuters) - Brazil's small and medium-sized enterprises are feeling the impact of the coronavirus-fueled shock to the economy, while the cost of credit is rising despite official interest rates being at an all-time low, central bank president Roberto Campos Neto said on Wednesday.
In a wide-ranging online discussion hosted by Credit Suisse, Campos Neto also said the economy will almost certainly shrink, some sectors will require financial support, and the central bank stands ready to intervene even more aggressively in the foreign exchange market if need be.
Campos Neto said one of the first things the central bank did when the crisis started to unfold was conduct stress tests on small and medium-sized enterprises, or SMEs. The results were "not very good," and showed a "relatively large" potential for liquidity to be drained from the financial system.
The central bank has announced a 40 billion reais ($7.6 billion) package to help finance SME payrolls, of which the Treasury will contribute 34 billion reais and private banks 6 billion reais.
Campos Neto said current liquidity provisions for this sector and across the economy are adequate, but the central bank stands ready to do more if need be. "We are always looking to see what we need to do," he said.
The central bank's total package of liquidity, credit and capital measures to cushion banks and the economy from the worst of the crisis amount more than 1 trillion reais, worth some 16.7% of gross domestic product.
Campos Neto also said a proposed constitutional amendment to allow the central bank to buy bonds as part of its crisis-fighting arsenal will pave the way for the purchase of longer-dated government bonds.
This will help bring down long-term interest rates as Brazil's interest rate curve has steepened a lot recently, he said, likening it to the U.S. Federal Reserve's "Operation Twist" under then-Fed chief Ben Bernanke that brought down longer-term U.S. bond yields.
Campos Neto also said many of these measures are ones the central bank would not normally choose to take but has to in order to mitigate the financial and economic shock to the country from the crisis.
In this vein, the central bank will intervene even more aggressively in the currency market than it has already if volatility, exchange rates or market functioning become disorderly, he said.
Source : https://www.nasdaq.com/articles/brazil-central-bank-warns-of-mounting-pressure-on-small-medium-sized-firms-2020-04-08