Brazil’s Credit Stock Remains Stable in January with Annual Growth

Brazil’s outstanding credit stock remained stable in January but increased 11.7% year-on-year. Default rates rose to 4.4%, with lending spreads widening significantly. Despite high borrowing costs and interest rates at 13.25%, strong credit demand supports consumption, prompting policymakers to advocate for careful monitoring of credit expansion.

According to data released by Brazil’s central bank on Thursday, the country’s outstanding credit stock remained stable in January compared to the previous month. However, it has shown an annual increase, reflecting a growth pattern despite the present high borrowing costs. The total loans in Brazil amount to 6.462 trillion reais ($1.11 trillion), marking an 11.7% increase over the past 12 months, which is slightly higher than the 11.5% growth recorded in December.

The consumer and business default rates in non-earmarked credit have increased to 4.4%, up from 4.1% in the prior month. Additionally, lending spreads in this sector have widened by 1.1 percentage points, now reaching 28.2 percentage points. This trend indicates a tightening in credit availability amidst rising default risks in the economy.

Despite an aggressive monetary tightening cycle that commenced in September, resulting in Brazil’s benchmark interest rate rising to 13.25%, credit demand has remained robust. This demand is crucial in supporting consumption levels and subsequently applying pressure on inflation rates. Policymakers are concerned about this situation, emphasizing the need for caution in light of the rising debt levels among households and corporations.

In late February, the Financial Stability Committee expressed the necessity of close monitoring of credit expansion amidst increasing borrowing costs. Policymakers underscored the importance of vigilance given the current economic landscape, as the ongoing credit expansion could pose risks despite current challenges.

In conclusion, Brazil’s outstanding credit stock has demonstrated stability in January while exhibiting significant year-on-year growth. The increase in default rates and widening lending spreads suggest potential risks in the credit market. Policymakers remain vigilant regarding the implications of sustained credit demand amid high interest rates and elevated debt levels. Close monitoring is essential to maintain financial stability in the country.

Original Source: www.tradingview.com