Brazil central bank tackles cost of credit with new rules

Brazil’s central bank has announced a range of new banking rules that aims to bring down some of the world’s highest interest rate by increasing liquidity, reducing funding costs and fostering competition in the financial system.

The central bank said these changes will take effect between late April and early May. These would return reserve requirements on savings accounts to levels last seen before the 2008 global crisis.

Central Bank Director, Otávio Damaso, stated that the measures created conditions for banks to reduce interest rates on loans, without mentioning specific targets.

The central bank defined rules for banks to issue covered bonds, a kind of deposit that could boost mortgage lending by reducing funding costs.

Credit Suisse analysts estimated that the extra liquidity could increase earnings at Brazil’s largest banks by 0.7 percent to 2.4 percent. Analysts also mentioned that the additional liquidity should bring down some interest rates.

“Demand for credit is still weak, especially on the part of companies, and it would be tough to see a really big change even with an eventual drop in (interest) rates,” said Roberto Padovani, chief economist at Banco Votorantim.

Source :Reuters

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