Itaú Should Benefit From High Interest Rates, but Uncertainty in Brazil’s Economy Still Lingers

The challenge for Itaú Unibanco will be to navigate a volatile Brazilian economy and uncertain political environment, which is still working through the impact of high inflation, which exceeded 12% in April 2022 and the high interest rates intended to fight it. While inflation has since moderated, falling to 3.2% in June, the Brazilian central bank has kept interest rates high at 13.75%. The bank benefits from the return of high rates, but there is risk that economic fallout from rapidly increasing rates could lead to lower loan growth and elevated credit losses for the bank. That said, with inflation now well below its peak and in the low single digits, the opportunity for the Brazilian Central bank to achieve a soft landing remains open.