Economic Recovery and the Credit Channel

BRAZIL ECONOMICS - Report 28 Aug 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

With inflation expectations firmly anchored to the target and current inflation subdued, the size of the monetary easing cycle will be dictated by how fast activity recovers. Strong evidence of various types exists that the period of contracting GDP is over, but there are also many indicators that the rebound will be very slow. One of these is the behavior of credit. Although credit to households has expanded slightly in recent months, which stimulates consumption, lending to businesses had not reacted yet, and the deleveraging that has occurred so far has been slow and not generalized.

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