Brazil’s Credit Stability in January Amid Rising Costs and Demand

In January, Brazil’s outstanding credit was stable month-on-month but rose annually by 11.7%. Default rates in non-earmarked credit increased to 4.4%, alongside wider lending spreads. Despite high interest rates, credit demand remains strong, exerting pressure on inflation. Policymakers advise caution amid ongoing credit expansion.

Brazil’s outstanding credit displayed stability in January compared to the prior month, according to central bank data released on Thursday. However, it experienced an annual increase, despite the prevailing high borrowing costs. Total loans within Brazil, the largest economy in Latin America, amounted to 6.462 trillion reais (approximately $1.11 trillion), reflecting an 11.7% rise over the past twelve months, up from an 11.5% increase reported in December.

In the realm of non-earmarked credit, default rates among consumers and businesses rose to 4.4%, increasing from 4.1% in December. Furthermore, lending spreads in this same category widened by 1.1 percentage points, resulting in a total of 28.2 percentage points. This development suggests a growing concern regarding credit risk amid ongoing economic pressures.

Despite the Brazilian authorities implementing a robust monetary tightening strategy since September—raising the benchmark interest rate to 13.25% and signaling an additional 100 basis-point increase for the following week—strong demand for credit persists. This ongoing demand is bolstering consumption rates and contributing to inflationary pressures within the economy.

Consequently, members of the Financial Stability Committee expressed caution in their February minutes, indicating that the growth of credit, which continues despite elevated borrowing costs and the rising levels of household and corporate debt, necessitates careful monitoring and assessment.

Brazil’s credit landscape in January reveals a stable month-on-month position, along with a notable year-on-year expansion amidst high borrowing costs. With the increase in default rates and lending spreads, alongside strong credit demand despite monetary tightening, policymakers stress the importance of vigilance in monitoring the evolving credit landscape to mitigate risks associated with rising debt levels.

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