Private sector credit cycle to turn less supportive in Brazil

For roughly ten years, a relatively buoyant economic backdrop, resumption of financial stability (after the turmoil associated with the 2002 election) and lenient financial policies (at least in the past half-decade) encouraged a strong expansion of domestic credit. Policy initiatives such as payroll loans were designed to expand access and reduce the cost of credit for lower income households, and they succeeded. The resulting credit expansion almost certainly contributed to the growth of domestic demand during the decade. The credit expansion was from a low level and has not reached unusually high levels by international standards. 

But in light of the extraordinarily high interest rates that apply to much of this lending, and the sharp deterioration in the economic and financial outlook, it seems unlikely that the expansion will continue. Financial intermediation seems more likely to present headwinds than tailwinds for private demand for some time to come.