BRASILIA: Brazil central bank chief Gabriel Galipolo has warned of rising household debt, cautioning against efforts to further spur credit and consumption as the government rolls out billions of dollars in stimulus.
“You can’t celebrate the news that credit has grown and then complain that indebtedness has increased,” Galipolo said at an event in Sao Paulo.
“The credit that a financial institution extends is the debt somebody takes on.”
President Luiz Inacio Lula da Silva’s government has introduced measures to expand access to cheaper financing, boosting consumption as he seeks a fourth term in October’s election.
More broadly, Brazil’s government is trying to sustain growth, while policymakers are working to slow inflation to the 3% target.
Galipolo’s comments echo a concern the central bank has repeatedly raised: that stimulus to aggregate demand could keep economic activity above its potential and hence undercut ultra-tight interest rates.
Galipolo said higher household debt is, to some extent, a natural consequence of greater access to financing.
“If you somehow encouraged an increase in credit, it’s normal to expect indebtedness to rise as well,” he said.
Not all debt is necessarily a problem, he said, pointing to financing that allows families to acquire assets such as homes.
The greater concern is borrowing used to facilitate consumption in the short-term, particularly when people rely on expensive or inappropriate credit lines.
The central bank chief highlighted credit cards as a particular source of concern.
Inclusion programmes and the rapid expansion of card usage have brought tens of millions of Brazilians into the financial system, but a large share of those consumers now carry balances either through revolving credit or installments with high interest rates.
Rates on some of those loans are around 15% a month, Galipolo said. — Bloomberg
