Brazil central bank urges caution as credit expands amid high debt levels
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FILE PHOTO: A drone view shows the central bank's headquarters building in Brasilia, Brazil, December 26, 2024. REUTERS/Ueslei Marcelino/File Photo
BRASILIA (Reuters) - Brazil's central bank said on Wednesday that caution and diligence were needed as credit expands despite high borrowing costs and rising debt levels among households and businesses.
In the minutes of the latest meeting of its Financial Stability Committee (Comef), the bank noted that bank lending growth continued to accelerate for small and medium-sized businesses, a segment already showing high debt levels and materializing risks.
It also pointed to a pickup in household lending in riskier segments, with a "slight deterioration" in the quality of non-payroll-deductible loans.
"Households are facing high and rising debt burdens across all income brackets," it said.
Policymakers also highlighted that capital markets continue to grow at a faster pace than bank credit, with no signs of a reversal in that trend.
When the central bank raised interest rates by 100 basis points to 13.25% in late January and signaled another matching hike for its March meeting, it warned that a combination of a strong labor market, expansionary fiscal policy and "robust broad credit growth" was supporting consumption and aggregate demand, putting pressure on inflation.
Consumer price growth in Latin America's largest economy reached 4.96% in the 12 months to mid-February, exceeding the 3% official target.
"The committee maintains that macroeconomic policies enhancing fiscal predictability, reducing risk premiums, and lowering asset volatility contribute to financial stability and, consequently, improve borrowers' repayment capacity," the central bank added on Wednesday.
(Reporting by Marcela Ayres; Editing by Hugh Lawson)
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