Brazil’s interest rates: The power of the micro
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Brazil’s interest rates: The power of the micro

Credit scoring changes could be the key to breaking Brazil’s interest-rate burden.


Brazilian governments have long tried to lower the banking system’s very high interest rates. But while there has been a broad consensus on the negative impact that high banking costs have had on broader economic and financial growth, the policies used by different governments have been very different.

Dilma Rousseff, for example, pressured the central bank to push the base rate down and got the country’s public banks to lower the spread they charged above that rate in an attempt to get the private-sector banks also to lower their net interest margins. Both policies backfired spectacularly: the artificially-low interest rates led to surging inflation, which was also fed by the fiscal expansion created by using the public banks as a macro-prudential tool. 

Ironically, the result was much higher interest rates.

However,under Ilan Goldfajn, president of Brazil’s central bank since June 2016, the country finally has the right person, in the right job, to target the problem.

Credit scoring

There are many aspects to lowering inflation, but one of Goldfajn’s first policy decisions was to change the country’s credit scoring system from a default of opt-in to opt-out.

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