Brazil Central Bank lowers banks’ reserve requirements

Brazil’s central bank announced it would lower banks’ reserve requirements on time deposits to 25% from 31%, starting on March 16, in a move that will free up an estimated R$49 billion of liquidity.

In June, the central bank cut the requirement to 31% from 33%, aiming to improve market efficiency. Economy Minister Paulo Guedes said last year up to R$100 billion could ultimately be released into the economy over time using that mechanism.

At the same time, the central bank also raised the share of short-term reserve requirements, a measure it said should lower the amount banks need to hold in high quality liquid assets by a further R$86 billion. The central bank said this should help reduce the overlap between the two instruments.

«Together, these two measures should mean that for every new deposit raised, the amount financial institutions have to put towards complying with these regulatory requirements should be reduced by an average of 8.5 %» the central bank said in a statement.

Banks must hold short-term assets in reserve in case they run into liquidity emergencies, while reserve requirements can be used to help set liquidity levels across the banking system and support broader financial stability, the central bank said.

Original Story: Reuters | Camila Moreira
Photo: Banco Central do Brasil Site
Edition: Prime Yield