Finance Ministry seeks "middle ground" for payroll loans and is expected to propose a higher interest rate ceiling.

BRASILIA (Reuters) - The Finance Ministry is considering proposing to the government an increase in the interest rate ceiling for payroll loans to INSS beneficiaries to a level that represents a "middle ground" between the 1,70% per month limit announced last week and the level in effect until then, of 2,14% per month, two sources from the ministry told Reuters.

The suggestion is expected to be taken to a meeting scheduled for Monday evening at the Planalto Palace, with representatives from the Finance Ministry and the Civil House, where members of the economic team are also expected to propose the creation of a working group to discuss the topic in greater depth, according to reports.

A number of financial institutions, including Caixa and Banco do Brasil, suspended this type of operation last week after the National Social Security Council (CNPS) approved a reduction in the ceiling. The decision was made without a corresponding reduction in the basic interest rate, currently at 13,75% per year.

On Monday, the CNPS (National Social Security Council) set a new limit of 1,70% per month, a decrease of 0,44 percentage points in the rate authorized for financial institutions to carry out direct debit operations on payroll, which covers more than 37 million citizens, including retirees and pensioners.

A cap of 2,62% was also approved for payroll-deducted credit cards, compared to the previous percentage of 3,06%.

Febraban, the main banking association, criticized the measure, stating that such initiatives create distortions in the prices of financial products and tend to reduce the supply of cheaper credit.

One source emphasized that the Finance Ministry did not support the proposal, which was spearheaded by the Minister of Social Security, Carlos Lupi, who chairs the CNPS (National Council for Social Security).

The Council is composed of Lupi, his executive secretary, and five other members from the Social Security ministry, in addition to three representatives of retirees and pensioners, three of workers, and three of employers.

The Finance Ministry does not hold any seats on the CNPS. Therefore, according to the source, the economic team wants to "put Lupi in his place" so that he can be convinced to convene a new meeting of the Council and negotiate at least a partial reversal of the measure.

Since the change depends on a meeting of the Board, an immediate reversal of the measure is not possible, but an extraordinary meeting could be scheduled for the coming days. According to the second source, the timeframe would allow Caixa and Banco do Brasil to refine their calculations on the viability of the operations, depending on the interest rates set.

Traditionally with a longer discussion period, the working group could later delve deeper into this debate, he said. The suggested members for the group are not yet finalized, but could include representatives from the Treasury, the Civil House, Social Security, and banks.

When contacted, the Ministry of Social Security stated that it would comment on the matter after the meeting at the Presidential Palace.