BRASILIA: Brazil's central bank on Friday lowered reserve requirements for banks, freeing up 30 billion reais ($15 billion) in liquidity for the financial system at a time when many banks have become more cautious over lending.
Additional reserve requirements of six percent on demand deposits will be scrapped effective immediately. An additional requirement on term deposits would be lowered 1 percentage point to 11 percent, effective Oct. 29, the central bank said in a statement.
The move aims to spur lending by private-sector banks and may help put an end to a year-long rate-cutting cycle by the central bank.
The government of President Dilma Rousseff has demanded that private-sector banks increase lending and slash interest rates to help bolster the Brazilian economy, which is slowly recovering after a year of near zero growth.
"The reduction of reserve requirements is a stimulus for financial institutions to increase lending," Aldo Mendes, the central bank's monetary policy director, told reporters in Brasilia.
"We are trying to bring Brazil's reserve requirements more in line with international standards. Reserve requirements in Brazil are about 9 percent of the economy and with this change goes to 8.4 percent," Mendes added.
Mendes said the move does not reflect concerns over the health of the financial sector and that it was not related to the liquidation of troubled lender Banco Cruzeiro do Sul .
Earlier on Friday the central bank shut down Cruzeiro do Sul, a small lender that it seized in June after accounting irregularities triggered a $700 million shortfall.
"This should give further reason to believe that the (bank's) committee has indeed finished the easing cycle last month," said Alexandre Schwartsman, a partner with Schwartsman & Associados and a former central bank director.
The central bank cut its benchmark Selic rate for the ninth straight time to an all-time low of 7.5 percent on Aug. 29, leaving the door open for a final rate cut in October.
Brazilian private-sector banks have slowed the pace of lending amid worries that near record-high loan delinquencies rates could hit their earnings.
Non-government local lenders trimmed disbursements by 0.1 percent in July, compared with a 0.4 percent expansion in June. State banks disbursed 1.5 percent more credit in July on a sequential basis, below June's 2.6 percent, according to central bank data.
Rousseff has repeatedly called on banks to hike lending and has used state lenders Banco do Brasil and Caixa Econ?mica Federal to bring down the cost of credit to businesses and consumers, and boost access to credit.
The central bank also said that half of the requirements on time deposits can be met through the purchase of financial notes or credit portfolio effective immediately.
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