SAO PAULO, Aug 6 - Executives at two of Brazil's biggest lenders said on Thursday they expect additional interest-rate cuts from the central bank and argued such easing would be beneficial for the broader economy.
On Wednesday the central bank trimmed the benchmark Selic rate by 25 basis points to 14% - marking the fourth consecutive reduction - as recent indicators pointed to slower inflation and signs of a cooling economy. Despite the cuts, Brazil's real interest rates remain among the highest in the world.
Marcelo Noronha, CEO of Bradesco, told reporters that the central bank's previously restrictive stance has delivered its planned results. "It has driven inflation down, which is what we’re seeing in the core inflation figures. I see no reason why (rate-setting committee) Copom wouldn’t cut rates, though the magnitude and pace remain to be seen," he said.
Annual inflation in Latin America's largest economy decelerated to 4.52% in the 12 months through mid-July, moving closer to the central bank's stated target of 3%, plus or minus 1.5 percentage points.
Milton Maluhy Filho, CEO of Itau Unibanco, told GloboNews that Brazil needs to work toward bringing interest rates down into single-digit territory and should focus on creating conditions for structurally lower borrowing costs.
Banking institutions typically gain from elevated interest rates, but several major lenders in Brazil have already signalled strains from tougher macroeconomic conditions tied to high borrowing costs. Those elevated rates have also fed into rising household indebtedness and increased delinquency, the executives noted.
Market moves reflected investor attention to the sector's sensitivity to policy actions: shares tied to the two banks were lower, with BBDC4 down 1.94% and ITUB4 down 0.19%.
Both banks reported stronger quarterly earnings alongside the policy developments. Bradesco posted a 16% increase in second-quarter profit, while Itau's second-quarter earnings rose 8%.
Looking back, Brazil last experienced single-digit borrowing costs in early 2022, when rates were moved from 9.25% to 10.75% amid a surge in inflation. Policymakers had previously reduced the Selic to 2% during the COVID-19 pandemic.
The comments from Bradesco and Itau executives underscore a preference among major financial institutions for a gradual return to lower rates, contingent on continued progress in inflation readings and overall macro stability. The pace and size of any further reductions, however, remain contingent on the data that Copom observes in coming meetings.