Brazil’s central bank said on Friday it would ease banks’ reserve requirements, freeing up US$13 billion to stimulate lending and boost an economy facing its fourth consecutive year of sluggish growth.
The new measures, which would also loosen the rules on lending to small businesses, come as Brazilian President Dilma Rousseff looks to into October elections in which she is seeking a second four-year term.
“The central bank decided to adopt measures to improve the distribution of liquidity in the economy,” the bank said.
It attributed the move to “recent moderation in credit concessions, relatively low levels of default and the reduction of risk levels in the financial system.”
It said there was extra room for maneuver because total reserves in the banking system had risen from around US$87 billion in 2009 to nearly US$182 billion now, including a US$22.4 billion increase in the past 12 months.
Under the new rules, banks would be allowed to use up to 50 percent of reserves for credit operations, new loans and diversified investment portfolios.
The central bank also changed the way it calculates the reserves banks must hold to cover their outstanding loans, basing the amount on the number of payments remaining rather than the total term of the loan.
That could free up an additional US$6.7 billion, officials estimated.
Rules for lending to the small business sector were also eased.
Brazil’s economy registered a growth rate of 7.5 percent in 2010, the year Rousseff was elected to replace her popular predecessor and mentor, former Brazilian president Luiz Inacio Lula da Silva.
However, the economy has since cooled, growing just 2.7 percent in 2011, 1 percent in 2012 and 2.5 percent last year.
Analysts forecast growth of 1 percent this year, with only a minor, temporary boost from hosting the FIFA World Cup, this month and last month.
The central bank is meanwhile fighting to contain rising prices.
Annual inflation came in at 6.52 percent last month, breaking the government’s target ceiling of 6.5 percent. The bank has tried to tame prices by increasing the benchmark interest rate to 11 percent.
However, the new stimulus measures is likely to increase inflation.
“We are seeing contradictory messages from the central bank. On the one hand, they are keeping interest rates high, but on the other hand they are freeing up liquidity,” said Andre Perfeito, the chief economist at investment firm Gradual Investimentos.
The plan could also backfire, he added.
“It’s not so easy. We’ll see if banks want to lend more money or if families and companies want to take it. Business and consumer confidence levels are low,” he said.
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