After impasse, government backs off and raises interest rate to 1.97% per month for payroll of INSS beneficiaries

The decision comes after banking institutions suspended the granting of new loans after the government established, at the beginning of the month, the reduction of the interest ceiling from 2.14% to 1.70% per month. At the time, the banks claimed that it was not feasible to grant payroll loans with this new level of interest.

Economics professor at ESEG – Faculdade do Grupo Passo and CEIC Data economist André Morais explains that the decision to propose the maximum interest rate for the payroll of INSS beneficiaries at 1.70% per month was a decision taken by the Minister of Social Security, Carlos Lupi, without consulting the government’s economic team. This proposition generated an impasse with banking institutions.

“Most Brazilian banks, including public banks, decided to suspend new operations with payroll loans. As a result, two weeks after this decision, an extraordinary meeting was scheduled to put an end to this blackout of payroll loans that ended up being generated”, informs Morais.

This credit modality allows INSS beneficiaries to have access to loans with lower interest rates, including the credit card modality. The lowest rate is only possible, as the discount is already included in the payroll or benefit.

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How this impasse affects beneficiaries and trade

Economist, sociologist and financial market professor at the University of Brasília (UnB) César Bergo explains that the suspension of the payroll loan offer for INSS beneficiaries has an economic impact, as billions of reais stop circulating and affect economic activities, such as the trade.

“Many times this retiree or pensioner receives a small benefit amount and, sometimes, they have an emergency or a financial problem and (the payroll loan) is the lowest interest rate on the market. So it creates this problem not only for the economy, but also for users”, says the economist.

Bergo also points out that suspensions or cuts in these types of credit generate serious effects on the economy. “Once you suspend (the payroll loan), you create some problems and for the economy it is money that stops circulating, it is money that is no longer present in business. So, this has a direct impact on economic activity and ends up reflecting on the country’s economic growth,” he says.

What Febraban says

In a note, the Brazilian Federation of Banks (Febraban) informs that it disagreed, initially, with the proposal presented by the government with the increase of the interest ceiling to 1.97% per month. The disagreement occurs, according to the federation, “because it is a level still below the current costs for part of the banks that operate this credit line”. However, the entity states that it is up to each financial institution to assess the conditions for granting payroll to INSS beneficiaries.