BC sees Brazil’s financial system as ‘resilient’ – 05/31/2023 – Market

The BC (Central Bank) recognized a slowdown in the supply of credit in Brazil, but said it was a movement compatible with the tight monetary policy, while assessing the national financial system as “resilient” to scenarios of macroeconomic stress.

In the minutes of the last meeting of the Comef (Financial Stability Committee), on May 23 and 24, published this Wednesday (31), the BC said that the growth of broad credit continued to slow down in the different modalities, compatible with the current stage of the monetary policy cycle.

The Selic rate is currently at 13.75% per annum, a high level that tends to restrict economic activity and the supply of credit by increasing the cost of borrowing. The BC considers this level of interest adequate to contain the rise in prices and anchor inflation expectations.

Data from the day before confirmed a decelerating trend by showing that lending in Brazil fell 17.5% in April compared to the previous month, with the total stock of credit falling 0.1% in the period, to R$ 5.363 trillion .

Even so, the BC said in the Comef minutes that “asset prices and credit growth do not represent a concern in the medium term, although there are uncertainties to be monitored”.

According to the document, the national financial system has maintained sufficient capital and liquid assets to absorb potential losses in stressed scenarios and comply with current regulations, showing resilience in the results of stress tests.

“The most severe impact continues to be observed in the scenario of a breakdown of confidence in the fiscal regime, [mas] sensitivity analysis test found that even if troubled assets doubled in relation to their current levels, the system would not present relevant non-compliance”, said the BC.

The autarchy warned that the prospective global scenario is adverse and presents “risks that may lead to the materialization of extreme scenarios of repricing of global financial assets”. She cited the collapse of US banks and warning that, in the United States, some financial institutions still face challenges in attracting deposits and managing liquidity.

In any case, “the recent bank resolution events observed in the advanced economies did not have a relevant impact on the Brazilian financial system”, said the BC in the minutes of the Comef.

“The Committee is attentive to the evolution of the domestic and international scenarios and remains prepared to act, in order to minimize any disproportionate contamination on the prices of local assets.”