Reserve Cuts to Get Banks Lending: Daily

By Ben Tavener, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – Brazil’s Banco Central (Central Bank, BC) has reduced its compulsory reserve requirements for the country’s banks, freeing up some R$30 billion (US$15 billion) of the R$380 billion (US$189 billion) of funds that must be safeguarded in the BC’s accounts. It is hoped that money could be injected into the economy through increased access to loans by the banks.

Banco Central (Central Bank) Director of Monetary Policy Aldo Luiz Mendes, Brazil News

The BC’s Director of Monetary Policy, Aldo Luiz Mendes, photo by Elza Fiúza/ABr.

The Central Bank statement also announced it had now scrapped the additional six-percent requirements on demand deposits (“à vista”), and as of October 29th it will reduce those on term deposits (“a prazo”) from twelve to eleven percent.

Aldo Mendes, the BC’s monetary policy director, said the reduction was a “stimulus for financial institutions to increase lending” and an attempt to bring the reserve requirements “more in line” with international banking standards, Reuters reports.

It is also hoped the move will bring an end to the bank’s easing cycle, involving numerous cuts in interest rates, which has seen the country’s benchmark SELIC rate reduced to a historic low of 7.5 percent.

However, some analysts believe a further cut could be made in October. President Dilma Rousseff had previously urged private banks to increase lending and cut their rates to help kick-start the Brazilian economy; although signs of a recovery have been witnessed, they have been much less than hoped for.

The government has now reduced its growth estimate for 2012 from three to two percent. The BC now believes the 2012 GDP figures will be closer to 1.6 percent.

Read more (in Portuguese).

* The Rio Times Daily Update is offered to help keep you up-to-date with important news as it happens.

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