Key insights
- Brazil's central bank opposes capping credit card interest rates despite President Lula's concerns about household debt. The central bank fears price controls would restrict credit supply, potentially worsening the situation. While this has limited direct impact on US equities, it reflects global trends of balancing inflation control with economic growth, and highlights potential risks in emerging markets which could indirectly affect US investor sentiment.
By Marcela Ayres
BRASILIA, March 26 (Reuters) - Brazil’s central bank opposes credit-card rate caps but is exploring alternative ways for consumers to access credit, Governor Gabriel Galipolo said on Thursday, after President Luiz Inacio Lula da Silva called for measures to ease household debt.
The leftist president, who is seeking reelection in October, said on Thursday he had tasked his newly appointed Finance Minister, Dario Durigan, with proposing alternatives to ease debt repayment, pointing to a disconnect between Brazil’s solid economic performance and its indebted families.
Public opinion polls in the past month have shown Lula and Senator Flavio Bolsonaro, widely seen as his main rival in the presidential race, statistically tied in a potential run-off.
Asked at a press conference about possible policy responses, Galipolo said household debt in Brazil is largely driven by revolving credit card balances, which carry interest rates exceeding 400% annually when consumers fail to pay their bills in full. He signaled his opposition, however, to capping rates.
"I always stress that price controls tend to constrain supply as well. You may end up worsening the situation, because those already in debt would not benefit, and new borrowers could be shut out due to tighter credit supply," he said.
Galipolo said the central bank’s approach was to build alternatives that give consumers more advantageous choices, rather than restricting existing options, but gave no details.
He added that Brazil has around 100 million active credit card users, up sharply since the pandemic.