BC sees impact of interest rate shock on ‘moderate increase’ in default, minutes show

The Central Bank’s Copom (Monetary Policy Committee) already sees the impacts of the interest rate shock on credit concessions for families and the moderate increase in default, according to the minutes released this Tuesday (1st).

“There is an impact on recent data regarding both the composition of credit concessions for families and the moderate increase in delinquency, in part associated with a dynamic in real disposable income that suggests retraction”, said the BC in the document.

Last Wednesday (26), on the eve of the second round of elections, the Copom maintained the basic interest rate (Selic) at 13.75% per year.

It was the second meeting in a row in which there was no change in the Selic level. At the previous meeting, in September, the BC collegiate interrupted its most intense cycle of monetary tightening since the adoption of the inflation targeting regime in 1999.

According to a survey by the CNC (National Confederation of Trade in Goods, Services and Tourism) released in October, delinquency maintained a high rate of increase in September. In the month, the volume of consumers who delayed the payment of debts reached 30%, the highest since the beginning of the historical series.

It was the third consecutive record for the index, which increased 0.4 percentage point in relation to the month of August. In an economic scenario marked by high interest rates, the debts already contracted make it more expensive and squeeze the budget of families, especially those with lower incomes.

In the minutes, the BC also highlighted that there was a reduction in the idleness of the economy – a parameter that indicates whether the economy is running above or below its potential – and that it will continue to assess the evolution of services inflation.

“The Copom reinforces that it incorporates, in its projection, an increase in idleness over the monetary policy horizon, as a reflection of the monetary adjustment undertaken in recent quarters,” he said.

“The Committee continues to monitor, with special attention, the evolution of services inflation, which depends both on inflationary inertia and on the output gap, and whose trajectory will become clearer over time,” he continued. The output gap measures the difference between the economy’s potential and actual growth, and the labor market situation is one of the thermometers for estimating this difference.

According to the BC collegiate, the set of indicators signaled a more moderate pace of growth, adding that the lagged effect of monetary policy on the economy points to a slowdown in economic activity, which tends to accentuate ahead.

“On the one hand, the impetus of the reopening of the economy in the service sector and the fiscal stimuli still drive consumption growth, although these impulses should subside. On the other hand, the impact of monetary policy and its lags point to a reduction in the pace of economic activity, which tends to increase in the coming quarters”, he said.