The growing debt in the country reflects the negative impact of inflation and high interest rates on families, according to risk rating agencies consulted by the CNN Money.
“Both have eroded families’ ability to pay, particularly those who rely on unsecured or floating-rate loans, despite a strong labor market,” points out William Foster, senior vice president of the sovereign group at Moody’s Ratings.
– or from rating in financial market jargon – they work as gauges of the scenario of companies and countries and are used by investors to know the best decisions about where to put their money and make a profit.
The houses interviewed by the report do not currently see the scenario of family debt as a significant threat to the economy or financial stability.
However, these factors could hurt the country’s overall credit picture in the long term if household debt and non-performing loans continue to rise unchecked, putting significant pressure on economic growth and the banking system and, consequently, increasing risks to financial stability, according to Foster.
Still, Moody’s is betting on progressive cuts in the BC (Central Bank) interest rate.
High interest
The problem in the country is mainly due to high interest rates. Until the end of March, the Selic base rate was at the highest level in two decades. , the BC’s monetary policy remains restrictive, with the country’s interest rates at 14.75% per year.
Even with high rates, Brazilians continued to take out loans, as shown by data from the BC, which indicates a record number of withdrawals by individuals in December 2025. Meanwhile, .
“Particularly in an environment of high interest rates, families’ deleveraging, that is, the ability to effectively pay debts is greatly compromised. High interest rates in Brazil are nothing new, but for individuals the indicator is much higher and the greater the default, the more these rates rise to compensate for the risk”, emphasizes Renato Donatti, senior director at Fitch Ratings.
In this sense, the scenario could be seen as merely cyclical. However, in general, interest rates in Brazil are structurally higher than in most economies in the world, regardless of the economic cycle, due to characteristics of the SFN (National Financial System) that limit the full transmission or pass-through of monetary policy decisions, according to William Foster.
“Such features include a high share of floating rate debt, inflation-linked debt and segmented credit markets subject to interest rates other than market rates. As a result, large changes in the policy rate are often necessary to materially affect borrowing costs”, ponders the Moody’s senior vice president.
Other structural issues further worsen the scenario, recalls Rodolpho Sartori, economist at Austin Rating.
“Brazilians in general have difficulty with finances. For people in everyday life it is not as simple as it seems, and the government has a part in this. With the economy growing, people will get into debt”, provokes Sartori.
The economist highlights that, by promoting easy credit lines, such as , a “more prone environment” to risk is created. However, .
“Literacy is essential: how a credit card works, how expensive interest rates can be. There is no very clear regulation on this. Is there a possibility of a ceiling? It is not very clear. This is an essential point for the government to look at”, points out the Austin specialist.
“None of this is bad in itself, but the ease in taking credit ends up making the environment more prone. If there is less intense regulation – which the government wants to make activity more heated -, there is a risk. And there was a design flaw in the new payroll loan. It should not only allow the exchange of credit, but perhaps a tougher restriction”, assesses Sartori.
Government measures
According to Sartori, what Austin follows most about this scenario is how it may be affecting the government’s popularity.
And to contain debt, the government is betting all its chips on the .
However, the measure is seen as a palliative.
“They may provide some temporary relief. However, the main cause and solution will be the level of interest rates. A significant drop in interest rates would provide the greatest long-term relief for families and businesses,” says Foster.
Sartori reinforces the assessment by explaining that the measure presented is of a cyclical nature, so that the structural framework does not change.
“Educational programs via the Treasury have to be on the agenda. And we have to better target where to attack: ceiling for spreadmaking access to credit difficult, etc.”, lists the Austin economist.
Due to the urgent tone that the Executive gives to the agenda, Sartori indicates that there is an electoral interest in the specific fight against debt, since the government would be perceiving a lack of popularity on that side.
But before interest rates fall, as Foster points out, the Austin economist highlights one of the homework that still needs to be fulfilled by the Lula administration: “fiscal remains a ‘heel [de Aquiles]’ unresolved”.
