Brazil’s outstanding credit stock was stable in January but rose 11.7% year-over-year, reaching 6.462 trillion reais. Default rates increased to 4.4%, with lending spreads widening. Despite high borrowing costs and a rising benchmark interest rate of 13.25%, credit demand remains robust, placing pressure on inflation. Policymakers emphasize caution amidst rising household and corporate debt.
Brazil’s outstanding credit stock remained stable in January compared to the previous month, according to data released by the central bank. However, it experienced a notable annual growth, reflecting an 11.7% increase to 6.462 trillion reais ($1.11 trillion) compared to the previous year, up from 11.5% in December.
The rate of default among consumers and businesses in non-earmarked credit rose from 4.1% to 4.4% from the prior month. Lending spreads in this category also increased, widening by 1.1 percentage points to reach 28.2 percentage points. This shift indicates a growing concern regarding credit challenges amidst rising borrowing costs.
Despite an aggressive monetary tightening strategy since September, which has raised Brazil’s benchmark interest rate to 13.25%, credit demand has not wavered. This continued demand is contributing to consumer spending, exerting additional pressure on inflation rates.
Policymakers have expressed caution, as outlined in the Financial Stability Committee minutes released in late February. They emphasized the importance of monitoring credit expansion carefully, especially given the high borrowing costs alongside escalating household and corporate debt.
In summary, while Brazil’s outstanding credit volume remained stable in January, it continues to grow on an annual basis. The increase in default rates and lending spreads highlights potential risks in the credit market, despite strong demand. Policymakers remain vigilant regarding credit expansion, given the implications for inflation and overall economic stability.
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