Enrique Marshall Director Master in Banking and Financial Markets PUCV, former Vice President of the Central Bank
Enrique Marshall
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Bank credit is currently evolving extremely weakly. Its year-on-year rate of expansion, discounting inflation, is 1.9%. If we refer to its different components, it can be seen that that of companies grows in real terms at 0.5%; housing, 5.9%; and consumption, 2.9%.
But, that is not all, there are other developments that reinforce that diagnosis. Retail credit appears to be hit hard, considerably more so than wholesale credit, which is characteristic of periods of economic slowdown. Thus, for example, credit aimed at smaller companies, understood as those that are evaluated in group form, shows a contraction of 9.9%.
“It is clear that the economy is going through an adjustment process. But the figures tend to confirm that public policies are producing the ‘intermediate’ effects that were expected”.
Meanwhile, operations with the largest companies, defined as those that are evaluated on an individual basis, expanded by 7.3%. These antecedents allow us to affirm that placements aimed at SMEs and households are the most affected at this juncture.
Another development that accounts for the above is the dynamics of housing loans. Last June, the flow of new operations fell by 6% compared to the previous month and by 50% compared to the same month a year ago. Such a low record has not been seen since 2016.
How should we interpret these figures? There are several possible readings. On the one hand, it is a clear sign that the economy is in a process of adjustment. In the previous two years, credit and activity were decoupled: the first of these two magnitudes grew much faster than the second, which is not normal and could become explosive if it persists. At this time, the synchronization has been restored and this is a sign of normality in the functioning of the markets.
On the other hand, the figures tend to confirm that public policies are producing the expected “intermediate” effects. I am referring to the fact that, beyond the debate on whether the Central Bank reacted in a timely manner or not -which seems to me to be an inconsequential controversy-, the monetary policy propagation mechanism is working in the anticipated terms.
Indeed, the rise in the policy rate (TPM) has induced a general increase in all the rates faced by households and companies and, as a result, a slowdown in credit and spending, with the corresponding lags. That’s good news.
The impact on inflation has not yet been verified, because it operates with a somewhat greater lag. However, if spending continues on the trend seen so far, that impact should come sooner or later.
A surgical intervention is not desirable in itself, but it is good when it leads to restoring the patient’s health. The same can be said of an economic adjustment. Welcome if it allows to restore the stability and vigor of the economy.
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