Brazil is taking steps under President Michel Temer to do something about the large spread between Brazil’s benchmark Selic rate and the average annual interest rate on credit cards, which is more than 450 percent and is stopping Brazilians from shopping.
According to a report in Bloomberg, fixing the wide spread between the Selic rate, which is 13.75 percent, and the average annual interest on credit cards of 450 percent is taking on new urgency because the country has been in a recession for seven straight quarters. Bloomberg reported last week Temer rolled out a package of microeconomic measures to stimulate growth in the country, and one of them is lowering the interest rate on credit card fees. On Tuesday (Dec. 20) the central bank is expected to discuss it in a press conference. Meanwhile, the finance and taxation committee of Congress is also looking at measures to reduce the amount of interest credit card companies in Brazil can charge, with one politician calling for a ceiling of 12 percent per year, reported Bloomberg.
“For an effective reduction in rates, there needs to be a really profound change in credit cards and the way that they are organized,” Gustavo Loyola, a former central bank president who now works as a partner at the Tendencias consulting firm, said in the report. “It’s not something that you can do overnight.”
Because the interest rate is so high on credit cards, Bloomberg noted Brazilians don’t use credit cards in the same fashion that consumers do in the U.S. Interest rates are about 38 times lower in the U.S compared to Brazil. For Brazilians, installment plans and bank loans are more common ways to buy high-priced items in Brazil.