Explaining Strong Credit Growth in Brazil Despite High Policy Rates

IMF News, October 9, 2025

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Canonical URL: Explaining Strong Credit Growth in Brazil Despite High Policy Rates

Title: Explaining Strong Credit Growth in Brazil Despite High Policy Rates
By Swarnali A. Hannan, Daniel Leigh, and Rui Xu
Date: October 9, 2025
Main conclusion: Monetary policy transmission in Brazil remains effective; strong credit growth reflects higher income and expanded financial inclusion rather than failure of monetary policy.

Brazil’s monetary policy interest rate (Selic) is at 15 percent.
Brazil’s central bank: first major central bank to hike rates during the pandemic; after easing, began a new tightening cycle in September 2024.
Inflation context:
- Twelve-month inflation rate: 5.1 percent in August (down slightly from previous month, but above the 3 percent target).
- Inflation expectations projected to stay above target over an eighteen-month horizon.
Transmission estimates:
- A 1 percentage point increase in the policy rate raises lending rates by around 0.7 percentage point after four months.
- To raise average lending rates in the economy by one percentage point, the monetary policy rate must increase by about 1.4 percentage points (because roughly 40 percent of total credit is government-directed loans less responsive to policy changes).
Sectoral responsiveness:
- Since 2020, corporate lending rates have become more responsive to changes in the basic rate.
- Corporate loans adjust faster than consumer loans (bank-level analysis).
- Payroll-backed consumer loans are the least responsive because of rate caps.

Aggregate credit outcomes in 2024:
- Bank credit grew by 11.5 percent.
- Corporate bond issuance rose by 30 percent.
Cyclical factors:
- Economy has grown faster than expected, with low unemployment and rising incomes driving higher credit demand.
Structural factors and financial inclusion:
- Rapid expansion of fintech lenders increased access to credit.
- In 2024, digital banks and other fintech lenders accounted for a quarter of the credit card market and over 10 percent of non-payroll personal loans.
- Increased competition reduced banking-sector concentration and lowered average lending rates of incumbent banks.
- Bond-market financing for corporates as a share of GDP tripled in the last decade, driven by tax-exempt debentures.
Net effect: Strong demand and increased supply of credit despite high policy rates.

New loan volumes have been falling since April (2025 implied by context), indicating monetary tightening is tempering credit growth.
Brazil’s economy is showing signs of moderation amid tight monetary and fiscal policies and elevated global policy uncertainty.
Overall assessment: Concerns about lack of effectiveness of monetary policy are largely unwarranted; monetary policy transmission remains active.

Continued monetary tightening has been appropriate to bring inflation and inflation expectations down to the 3 percent target.
Monitoring needed of:
- The share of government-directed loans (about 40 percent) that moderate transmission.
- Financial innovation and increased access to credit from fintechs and bond-market developments.
Maintain coordination of tight monetary and fiscal policies to moderate credit growth and return inflation and expectations to target.

Source: By Swarnali A. Hannan, Daniel Leigh, and Rui Xu; October 9, 2025.