SAO PAULO, Oct 4: The global financial crisis is hitting Brazil’s internal credit market and will slow growth in Latin America’s biggest economy next year, Brazilian Finance Minister Guido Mantega said on Friday.

Brazil has the means to maintain growth by making adjustments and the government must respond to the challenges thrown up by the crisis, he said.

While noting that growth this year was expected to top five per cent, the credit crunch resulting from the crisis will moderate economic growth in 2009. He did not quantify that statement.

The main effect being felt was on the domestic credit market, Mantega said.

He explained that as international credit was almost impossible to raise, Brazilian companies were having to turn to the internal credit market and the added demand was driving up short-term interest rates.

The banks can’t satisfy all their clients and are demanding very high interest rates, he said.

Brazilian banks had problems of liquidity but not of solvability, because they don’t have unrecoverable assets, he said.

The minister added that inflation -- a constant preoccupation in Brazil, which has had struggled with hyperinflation in the past -- was under control because the price rise in primary goods has already dissipated.

Recent dramatic drops in the Sao Paulo stock market were attributable to foreign investors pulling out to cover losses in their home markets, he said.

The bourse closed down 3.53 per cent Friday, extending massive losses seen over the week.

Brazil’s central bank said Friday it was implementing new measures to boost market liquidity, as Latin America’s biggest economy grappled with the credit crisis.

The move -- the second such initiative in 10 days -- will allow banks to use a proportion of their deposits they are required to keep at the central bank to buy up the credit portfolios of smaller financial institutions.

Each of the transactions will be capped at 2.5 billion reals ($1.12 billion). The central bank hopes the change will inject 23.5 billion reals ($11.7 billion) into the Brazilian economy.

The bank has already taken other steps designed to shore up Brazil amid the financial turmoil, notably by relaxing rules on the use of obligatory bank deposits.—AFP