Brazil’s consumer loan default rate rose to the highest in 30 months, reinforcing concerns that households struggling with debt could further dent Brazil’s credit-driven growth model.

The consumer default rate in May rose to 8 percent, from a revised 7.8 percent in April, the central bank said in a report distributed today in Brasilia. The default rate on company loans remained unchanged at 4.1 percent.

In just over a month, analysts have shaved more than one percentage point off their 2012 growth estimate for Brazil, lowering it to 2.18 percent, according to a central bank survey released yesterday. Economists predict the second-biggest emerging market after China will slow for a second straight year even as the government has cut interest rates, granted tax breaks on industrial and consumer goods and provided more subsidized credit. The economy grew 2.7 percent last year after expanding 7.5 percent in 2010.

Retail sales in April slowed to 6 percent from a year earlier, compared with 12.5 percent in March. Auto sales plunged 11 percent in April as lenders restricted new credit amid rising default rates on car loans. In May vehicle sales bounced back 11.5 percent following tax breaks.

Outstanding credit rose 18.3 percent in May from a year earlier to 2.14 trillion reais ($1.03 trillion), the central bank said. Credit rose 1.7 percent from the previous month, compared to a revised 1.3 percent growth in April.

A Bank of International Settlements report published June 24 warned that credit expansion in Brazil and other emerging markets “far outpaced” economic growth in recent years and that “high debt levels could be a problem.” Rapidly expanding credit also “raises questions about the sustainability of bank performance,” the IBS said in the report published on its website.

Brazil’s consumer confidence index fell for the second straight month in June from a record high in April, according to the Getulio Vargas Foundation.

Still, central bank President Alexandre Tombini said on June 12 that default rates would fall throughout 2012 and help fuel an economic recovery as lower interest rates, rising wages, and low unemployment bolster household income.

The average interest rate charged on consumer loans fell to 38.8 percent from 41.8 percent in May, the central bank said. The average rate on company loans declined to 25 percent from 26.3 percent.

Since August, President Dilma Rousseff’s administration has reduced the overnight rate by 400 basis points. Policy makers will cut the benchmark Selic rate to 8 percent at their July meeting, according to the central bank survey. Traders are wagering that policy makers will cut the rate to at least 7.75 percent by August, according to Bloomberg estimates based on interest rate futures contracts.

The yield on the interest-rate futures contract maturing in January 2013, the most traded in Sao Paulo today, fell three basis points, or 0.03 percentage point, to 7.63 percent at 10:46 a.m. local time. The real weakened 0.7 percent to 2.0756 per dollar.

Bloomberg