Credit crisis risk may bring interest rate drop

At its last meeting, the Financial Stability Committee (Comef), a body of the Central Bank, highlighted the issue of interest rates in the country in assessing the economic and financial scenario.

Comef pointed out that there was a slowdown in the pace of granting credit to both companies and individual consumers. More expensive money, with rising interest for the customer, says the Committee, despite the Selic rate being stationary since August last year at 13.75%, also makes institutions more judicious when granting credit.

A part of this movement of institutions comes from the situation of Americanas, which helped to change the perspectives for the credit market in the country

Aod Cunha, economics commentator CNN assesses that the continuation of the current level of interest rates should generate a challenging situation in the credit market.

“The maintenance of a high rate, the extension of that rate, evidently, at some point, would generate a situation of more acute credit restriction. We need to reduce the interest rate. It needs to be done correctly, so that a poorly made reduction later does not lead to an additional increase in interest rates and a greater credit restriction”, he explains.

In a report sent to clients this week, consultancy Verde Asset pointed out that there are incipient signs of a possible credit crisis affecting the Brazilian economy and that, therefore, “good public policies” will be necessary to manage the situation.

In the practical life of companies, high interest rates indicate the need to have more money to pay debts, often contracted in a scenario where the rate was close to the minimum, as it was in 2021.

It is also worth mentioning that Brazil has the highest real interest rates (which discount inflation) in the world, at 7.4%, second only to Argentina, a relevant challenge for business.

bitter medicine

Interest rates are the tool used by the Central Bank to contain inflation.

Despite the side effects they may have on the economy, making credit more expensive and reducing the pace of activity in general, economists argue that it is a necessary remedy and a forced reduction in rates would have the opposite effect on prices.

In a recent interview with CNN, former finance minister Maílson da Nóbrega, founding partner of Tendência Consultoria, explains this unwanted effect.

“The perception (if the BC reduced interest rates “by force”) would be that the independence of the Central Bank ended.

Future interest would rise sharply, impacting the cost of the National Treasury and credit in the economy, and this would further slow down growth. Capital flight would provoke a sharp depreciation of the exchange rate, which would increase the acceleration of inflation. In other words, a complete and perfect disaster”, he says.

future interest

Over the past few days, it has been possible to observe a movement in the interest rate futures market.

The latest figures show that the contract for January 2024, accounted for on December 14, were at 14.07%. On February 13, the index fell to 13.80%. As of this Thursday, future interest rates are at 13.05%.

The assessment is that this movement is beginning to indicate some drop in interest rates. Economists understand that the possibility of the BC to start cutting interest rates in May or June grows.

This analysis takes place in the context of risk in the credit market, but also in view of the perspective that exists in Brasilia for the new rules that will guide and serve as a reference for public accounts.

Aod Cunha explains that a good proposal presented by the government can help to bring about a drop in the Selic rate.

“The fiscal rule cannot be just a projected target for the debt. It needs to show a clear rule about how public spending growth will be controlled. We know that it will not be a proposal like the spending ceiling was, but it has to be a rule that shows that spending growth will not generate a sharp growth in the public debt. If this is done, interest expectations will fall,” he said.

*Published by Pedro Zanatta, with information by Fernando Nakagawa.