Brazil's Central Bank Takes Measures to Increase Market Liquidity

Brazil's Central Bank Wednesday announced two measures to increase market liquidity and to shield the country from the current international financial turmoil.

According to the new regulation changes, a total of 13.2 billion reais (7.2 billion U.S. dollars) will be injected in the country's economy.

The first measure was to postpone a scheduled rise in the mandatory deposits which banks must repass daily to the Central Bank.

The mandatory deposits' share was previously due to rise to 20 percent in November 2008 and to 25 percent in January 2009; now the rises are planned in January and March of 2009 respectively.

The mandatory deposits force banks to repass part of the money deposited by their clients to the country's Central Bank, leaving banks with less money to lend.

Now with lower mandatory deposits, the Central Bank expects to keep 8 billion reais (4.4 billion U.S. dollars) in the market.

The second measure was that the Central Bank would increase a deduction for calculation of special interest-bearing reserve requirements from 100 to 300 million reais (55 to 166 million U.S. dollars), namely the "additional enforceability" calculations.

The mechanism is used to protect smaller banks, as only banks with over 166 million U.S. dollars in deposits will have their mandatory deposits increased.

According to the Central Bank, this will immediately result in an injection of 5.2 billion reais (2.8 billion U.S. dollars) in Brazil's economy.

It was the second time in a week that Brazil's Central Bank announced measures to minimize the impact of the international financial crisis in the country. Last week, the Central Bank sold 500 million U.S. dollars to the country's banks to halt the rise of the U.S. dollar compared to the Brazilian currency.

Source: CRIEnglish