Brazil Eases Reserve Requirements to Help Spur Lending, Economy
09/14/2012| 08:47pm US/Eastern
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--Brazil reserve requirement change to free up BRL30 billion to economy
--Central bank aims to gradually remove "additional" reserve requirements
--Bank officials expect rules changes to help lower local credit costs
By Gerald Jeffris
BRASILIA--Brazil's central bank late Friday announced it cut reserve requirements on certain cash and term deposits as part of an effort to lower local borrowing costs and help further spur a recovery of the economy.
The monetary authority said it would eliminate its so-called "additional requirement" on cash deposits and cut its additional requirement on term deposits to 11% from 12%, as well as ease rules to allow direction of such deposits in some forms of interbank lending. The changes, bank said, should free up some 30 billion Brazilian reais ($14.9 billion) of the BRL380 billion in bank deposits into the economy.
Speaking in a telephone interview after the announcement, Central Bank Monetary Policy Director Aldo Mendes said the latest measures would inject approximately BRL23 billion into the economy immediately and about BRL7 billion near the end of the year.
"This extra BRL30 billion will certainly increase the availability of credit," Mr. Mendes said. "We imagine that with this, interest rates charged to end consumers in Brazil will fall."
Brazil in recent years has made consistent efforts to pull down high credit costs charged by private lenders on top of the country's benchmark Selic rate. As of July, average credit costs on loans to consumers stood at an annual 30.7%.
Brazil makes the latest move in conjunction with a series of efforts by the government and the central bank to free up money for investment and spur growth. Brazil's government this week revised its estimate for the country's economic growth this week downward to 2% from 3% previously due to sluggish activity in the first half.
Approximately BRL14 billion of the new cash injection, Mr. Mendes said, would come from the central bank's authorization to direct more resource from term deposits to the purchase of treasury bills, auto loans and credit portfolios of other institutions.
In addition to injecting needed liquidity into the economy, Mr. Mendes said the move Friday would help adapt the country's reserve requirements to structural changes made in recent years.
"The logic of this change in the long term is to bring requirements in Brazil more in line with those practiced internationally," Mr. Mendes said. "This additional requirement is not used elsewhere."
The additional requirements, in place since 2001, are charged on top of basic reserve requirements already charged to banks.
Following the central bank's policy change Friday, some market participants speculated that the institution would now likely cut off its ongoing interest rate easing cycle. The monetary authority has cut the country's benchmark Selic interest rate by five percentage points over the last 12 months to a record low of 7.5%.
Mr. Mendes, however, said that the move didn't necessarily indicate the central bank would change the path of its base rate policy.
"I view these as two completely separate policy areas," he said.
According to recent central bank market surveys, the Selic rate is seen declining to 7.25% by the end of 2012 and rising to 8.25% by the end of 2013 under the influence of a heating local economy.
-Write to Gerald Jeffris at gerald.jeffris@dowjones.com
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09-14-12 2046ET
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