Wellton Máximo and Mariana Branco       Reporters Agência Brasil

Brasília – Besides inflation, there is another barrier that Brazil’s monetary policy faces as it attempts to reactivate the economy. Payment defaulat rates are at historic highs just as the country goes through a significant cycle of low interest rates.

At the end of this August, following a year-long series of reductions that began in August 2011, the Central Bank’s Monetary Policy Committee (“Copom”) lowered the benchmark interest rate, the Selic, to 7.5%, the lowest ever. At the same time, payment delinquency hit a historical high. According to Central Bank data, loans that are over 90 days late reached 5.9% in July, the highest since records began in 2002. If only personal loans are considered (as opposed to corporate loans) the rate rises to 7.9%.

“The government has unblocked the path to credit and more consumption but few families are taking advantage of the lower interest rates because their budgets are stretched to the limit,” says Carlos Eduardo de Freitas, a former Central Bank board member.

Freitas says that Brazilian families spend an average of 43% of annual income on installment buying, which is actually low compared to some developed nations where it can be over 100%. What weighs the Brazilian family budget down are taxes and charges the gobble up 22% of  income, and that is really high even though official interest rates have fallen for the last twelve months.

“Family debt is not that high, but servicing it is burdensome, especially for this kind of debt profile; that is, short term debgts with high interest rates,” says Freitas.

“It is not the size of family debt (“estoque”) that is the problem, but service charges on it,” explains Freitas.

 In July credit operation charges also reached a historical high of 36.2% per year. Other lines of credit, such as overdrawn checking accounts, had even higher interest rates.

Allen Bennett – translator/editor The News in English

Link - Inadimplência representa entrave para reativação da economia, avaliam especialistas