UPDATE 1-Brazil's central bank sees risk of credit bubble

Published 09/24/2010, 12:49 PM
Updated 09/24/2010, 12:52 PM

* Dollar inflows may raise credit risk in banking system

* Bank wants tougher prudential rules against bubbles

* Petrobras stock offering marked period of strong inflows (Adds comments from Meirelles, details, byline)

By Walter Brandimarte

NEW YORK, Sept 24 (Reuters) - Strong dollar inflows are increasing the risk of a credit bubble in Brazil, forcing policy makers to impose tougher rules on bank lending, central bank president Henrique Meirelles said on Friday.

The volume of credit provided by Brazilian banks has soared in recent months as the government stimulated consumption to support the economy during the global economic crisis.

Dollars coming from abroad may further add to that trend, Meirelles said, as they increase liquidity in the banking system.

"The central bank is very careful about that. That's the reason why we keep strengthening prudential rules in Brazil, to protect the Brazilian economy from credit bubbles," Meirelles told investors at an event organized by the Brazilian-American Chamber of Commerce in New York.

He avoided making projections about future dollar flows into the country following the conclusion of a $70 billion stock offering by Brazilian oil giant Petrobras .

"Nowadays it would be rash to forecast currency inflows ... especially due to high liquidity levels in the U.S. economy," Meirelles noted.

"That said, it's reasonable to suppose that the Petrobras stock offering marked a period of strong inflows, and no other stock offerings of the same magnitude are expected now," he added.

Current ultra-loose U.S. monetary policy is creating challenges for many emerging countries, which need to handle substantial dollar inflows that have caused their currencies to appreciate, hurting exporters and their balance of payments.

Meirelles said that while the United States has the right to support its economy with monetary stimulus, every country has to take its own measures to avoid imbalances caused by excessive dollar inflows. (Editing by James Dalgleish)

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