Brazil took steps to boost lending by as much as 150 billionreais (US$66 billion) as it strives to quicken growth withoutstoking inflation before presidential elections in October.

Policy makers reduced capital requirements for banks by 15billion reais, a move that could generate as much as 140 billionreais in loans, according to central bank official Caio Ferreira.They also created incentives for banks to channel as much as 10billion reais from reserves requirements into lending.

Today's moves are similar to measures taken July 25 thatdrew criticism from analysts who were surprised by efforts to boostcredit a week after policy makers kept interest rates unchanged atthe highest level in more than two years. Central bank PresidentAlexandre Tombini said earlier this month that controllinginflation with higher borrowing costs isn't at odds with measuresto free up credit.

“Banks don't want to lend. Putting more money into theinter-banking system is not going to do anything,” Tony Volpon,head of emerging markets research for the Americas at NomuraSecurities International, said by telephone. “There is too muchpolicy and political uncertainty.”

Swap rates on the contract due in January 2017 rose one basispoint, or 0.01 percentage point, to 11.37 percent at 11:59 a.m.local time. The real weakened 0.4 percent to 2.2562 per U.S.dollar.

Economic Outlook

President Dilma Rousseff's administration is struggling tocontain above-target inflation without causing growth todeteriorate further. The central bank has kept the benchmarkinterest rate at the highest level since 2012, after lifting it by375 basis points in the year through April.

The moves haven't improved the economic outlook, according toanalysts surveyed by the central bank, who forecast growth willslow and inflation will accelerate this year compared with lastyear.

Inflation will end this year and next at 6.25 percent, exceedingthe official target of 4.5 percent, according to analysts surveyedon Aug. 15. The economy will expand 0.79 percent in 2014, whichwould mark a slowdown from 2.5 percent in 2013 and would be theworst performance since Brazil's economy contracted in 2009,according to the analysts.

Today's changes are part of a strategy to unwind measures thatreduced credit in 2010 and 2011, Ferreira said. Bank lending grew11.8 percent in June, the slowest pace since April 2004, datacompiled by the central bank show.

“The government sees the economic slowdown as being moresignificant than what they expected,” Jankiel Santos, chiefeconomist at Banco Espirito Santo de Investimento, said by phone.“As the evolution of credit concessions is not in line with whatthey see as compatible with reasonable economic activity, they areloosening monetary stance.”

Slow economic growth and faster inflation have become centralthemes for the opposition in one of Brazil's most-contestedpresidential elections since its return to democracy in 1985.

Eduardo Giannetti, an economic adviser to potential candidateMarina Silva, said last night a victory by the opposition wouldreduce “clumsy intervention” in the economy, while oppositioncandidate Aecio Neves has pledged to slow consumer price increasesand boost growth. Giannetti said he was speaking on his own behalfand not as Silva's adviser.

A trained economist, Rousseff said in an interview on nightlynews Aug. 18 that Brazil is still overcoming the impact of theglobal crisis and that the economy will improve in the second halfof the year.

While Rousseff would garner the most support in the Oct. 5election, she wouldn't have the majority of total votes cast neededto avoid a runoff three weeks later, according to a poll conductedby Datafolha Aug. 14-15.

Silva in a second round would command a lead of four percentagepoints, which falls within the margin of error and makes theoutcome too close to call, according to Datafolha, a SaoPaulo-based polling company.

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