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High Interest Rates Safeguard Consumers from Debt, Says CNC
The latest move by the Brazilian Central Bank (Banco Central do Brasil, or BCB) to raise interest rates has triggered a heated debate among economists and financial experts. While some argue that the measure will curb inflation, others claim it will stifle economic growth and even lead to an increase in non-performing loans. However, one sector that benefits from the higher interest rates is the consumer, as it becomes less appealing for individuals to take on debt.
According to the Brazilian National Confederation of Commerce (Confederação Nacional do Comércio, or CNC), the increased interest rates will serve as a natural brake on consumption and, consequently, reduce the incidence of non-performing loans. "With higher interest rates, borrowing becomes more expensive, and consumers will be more cautious when it comes to taking on debt," said the CNC’s president, Cláudio Vieira.
This, in turn, will decrease the risk of debt inequality, as individuals will be less likely to overextend themselves financially. Furthermore, the increased interest rates will encourage consumers to prioritize their expenses, allocate their income more effectively, and avoid overspending.
In addition to this, the CNC argues that the higher interest rates will create a more balanced economy, where consumption is more in line with production, thus reducing the likelihood of debt accumulation. "The BCB’s decision will promote a more sustainable and stable economy, where consumption is aligned with production, reducing the risk of non-performing loans," emphasized the CNC’s president.
It is worth noting that the CNC’s position is not unanimously shared. Some economists argue that the higher interest rates will not only slow down the economy but also exacerbate the economic and social inequality in Brazil. "The move will disproportionately affect low-income individuals, who may struggle to access credit, and further entrench socio-economic inequalities," said a prominent economist.
The debate highlights the delicate balance between monetary policy and the impact on the real economy. While some may argue that the higher interest rates will lead to a more stable and balanced economy, others believe that the measures will only benefit the wealthy and large corporations, leaving the majority of the population struggling to make ends meet.
For now, the CNC is convinced that the higher interest rates will have a positive impact on the economy, particularly for consumers. As the organization’s president stated, "The BCB’s decision will bring stability to the economy and protect consumers from excessive debt." Only time will tell if the expert’s prediction comes to pass.
The National Consumer Debt and Arrears Survey (Peic), carried out monthly by the Confederation of Commerce, Services, and Tourism (CNC), has shown that the high interest rates in the country are making it harder for families to pay off their debts, leading to a surge in arrears. According to the survey, in October, 29.3% of consumers were behind on their debts for 30 days or more, up from 29% in September. The percentage of families with debts delayed for more than 90 days reached 50.4%, the highest level since February 2018.
The survey suggests that the high interest rates are causing families to take longer to pay off their debts, making it difficult for them to do so. “The increase in interest rates is leading to a rise in the number of people who are unable to pay their debts on time,” the survey said. The report also notes that the high interest rates are exacerbating the problem of debt among low-income families, with 37.7% of families with an income of up to three minimum wages falling behind on their debts.
The survey also highlights the impact of high interest rates on the ability of families to pay off their debts. “The high interest rates are making it harder for families to pay off their debts, which is why the number of people who are unable to do so is increasing,” said the president of the CNC, José Roberto Tadros. “We believe that measures aimed at reducing public spending can help reduce interest rates, which would bring significant relief to consumers and the economy as a whole,” he added.
The Peic survey has been conducted monthly since 2010, with approximately 18,000 consumers surveyed in each of the state capitals and the Federal District. The data suggests that the high interest rates are having a profound impact on the ability of families to pay off their debts, and that measures need to be taken to address this issue.
