Brazilian bank lending continues to decelerate, according to recent data from the country’s central bank. In August, credit growth over the past year slowed to 10.1%, a decrease from the 10.8% recorded in July, reflecting the impact of high interest rates on economic activity. The central bank anticipates this trend will continue, projecting annual loan growth to reach 8.8% by the end of the year. While this represents a significant slowdown from the 11.5% expansion observed in 2024, it is a slight upward revision from the previous estimate of 8.5%.
The central bank attributes the slowing pace of credit expansion to its restrictive monetary policy cycle. Since September of the previous year, the bank has increased interest rates by 450 basis points, bringing the benchmark Selic rate to 15%, its highest level in nearly two decades. This rate has remained steady during the two most recent policy meetings. The central bank closely monitors these trends to manage inflation and maintain economic stability.
Outstanding credit experienced a monthly increase of 0.5% in August compared to July. However, default rates on non-earmarked loans to consumers and businesses increased to 5.4%, up from 5.2% in the prior month. Furthermore, average lending spreads widened to 32.3 percentage points, compared to 31.8 points the previous month. These figures suggest increasing financial strain amid the higher interest rate environment.
