Brazil was financing growth long before it had banks. In the 1830s and 1840s, the coffee economy of the Paraíba Valley expanded on the back of a sprawling ecosystem of private and informal credit — promissory notes, merchant advances, and debts between individuals. Historians of the period note that it was precisely this parallel architecture that enabled the sector’s “rapid growth,” all without relying on anything resembling a modern banking system. The historical echo in 2025 is hard to miss: the Brazilian economy still runs on credit channels that bear little resemblance to the monetary-policy playbook.
The Central Bank itself acknowledges as much. The classic mechanism — high interest rates suppress demand — operates only partially in Brazil. Credit does not fall when the Selic is at 15%; it merely slows, but keeps expanding. The reason lies in the weight of directed credit, a circuit that is almost impermeable to monetary tightening. Rural lending, mortgages, payroll loans, public guarantee schemes and cooperatives continue financing the real economy even when the cost of money rises to punitive levels. This buffer prevents deep recessions, but it also weakens monetary transmission and muddies the calculation of the country’s true neutral rate. According to the Central Bank, total credit is expected to grow 8.8% in 2025 and 8.0% in 2026, while expanded credit to the non-financial sector is rising 12.2% year-on-year.
A second layer reinforces this insulation: the rise of non-bank financial institutions (NBFIs). Credit funds, FIDCs, non-bank fintechs and private credit structures have grown rapidly, taking a larger share of financial intermediation. The Central Bank notes that Brazil now has the second-highest participation of NBFIs among emerging markets. A meaningful portion of risk — and credit supply — has migrated to a domain where the Selic has limited reach. Capital markets, which have been expanding faster than bank lending, now act as a relief valve during prolonged tightening cycles.
The result is a paradox Brazilians have lived with for two centuries: the economy withstands high interest rates because it operates through alternative financing corridors. This cushions shocks, supports consumption and preserves employment, but it also prolongs periods of elevated rates and complicates the Central Bank’s job. Brazil will continue to grow with high interest rates — until the day it doesn’t. As with the coffee boom of the nineteenth century, prosperity can last a long time; the discomfort lies in the fact that the logic behind it remains outside the reach of both the regulator and the textbook.
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