Selic, default, and consumption: what to expect?

BRAZIL ECONOMICS - Report 29 Jul 2025 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

Consumption shows signs of slowing down in the second quarter, indicating that contractionary monetary policy is possibly already taking effect. The increase in the interest rate occurs in a scenario of high household indebtedness, which should exert additional pressure on default rates.

Our estimates indicate that default could peak between 6.5% and 6.8%, surpassing the levels observed in the previous cycle. Still, we expect consumption to respond to temporary stimuli throughout the year, while showing some resilience amid a heated labor market.

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