Brazil Injects US$ 7 Billion in Economy to Prevent US Contagion

US dollar stack Brazilian monetary authorities eased rules on reserve requirements that banks must keep at the Central Bank in a push to inject liquidity and preserve Brazil from the impacts of the United States financial crisis.

The Central Bank delayed the introduction of higher rates for mandatory deposits from leasing companies by two months and raised the threshold on exemptions for cash, time and savings deposits, according to a Wednesday e-mailed statement.

The measures will add 13.2 billion reais (US$ 7.16 billion) to the financial system, the Central Bank said. The measures are geared to "preserve the financial system from the effects of liquidity restriction which has been observed in the international financial system," said the bank's release.

The measure reverses part of the Central bank's efforts to slow lending growth that's fueling domestic demand and stoking inflation. Policy makers began phasing in reserve requirements on cash deposits from lease underwriters for the first time in May, a move that would remove as much as 40 billion reais from credit markets. In Brazil, leases are commonly used as consumer loans.

Under the rules announced Wednesday, a reserve requirement of 20% of cash deposits from lease underwriters will take effect January 16, two months after the original schedule. The reserve requirement will increase to 25% in March, according to the Central bank.

Banks will only have to keep part of their cash, time and savings deposits at the Central bank if the reserve requirement exceeds 300 million reais, the Central bank said. Previously, this threshold was 100 million reais.

"This is positive for the banks because they will have more money available to lend in a moment when there's credit restrictions abroad," said Aloisio Lemos, an analyst at Agora Corretora in Rio de Janeiro. The higher thresholds will mainly benefit small and medium-sized banks, Lemos said.

Bank lending climbed 33% in the 12 months ended in July after a 27% expansion in 2007, the fastest in more than a decade. The Central bank is scheduled to release August figures on September 29.

This is not the first reaction to the US financial crisis. Last week the Brazilian government decided to "fortify" the country's Economic and Social Development, BNDES bank with the purpose of supporting Brazilian corporations that have loans from international banks and could not be able to renew them because of the current credit drought.

The first transfer of funds to BNDES totaled US$ 2.8 billion but the option remains open if Brazilian corporations "need to renew credits."

"Brazilian corporations are having problems to renew their credits with international financial institutions because of the crisis", admitted Mário Cypriano, CEO from Bradesco, the country's largest private bank.




You May Also Like

Brazilian sailor and adventurer Amyr Klink

Brazil’s Number One Sailor and His Search for the Ideal Travelling Machine

Sailor Amyr Klink, the son of a Lebanese father and a Swedish mother, is ...

Press Freedom Falls Big in the US. In Brazil Is a Little Worse

Freedom of press in the United States has fallen to the same level of ...

Brazil, Put Your Money Where Your Mouth Is

The Brazilian government’s project for the protection of human rights defenders, launched in BrasÀ­lia ...

Brazil and Barbados Agree Haiti’s Violence Must End

The Minister of Foreign Relations of Barbados, Billie Miller, praised Brazil’s performance in Haiti, ...

Brazil Finds Oil in New Exploratory Frontier Off Northeast Coast

Brazilian state-controlled oil multinational Petrobras and Norwegian company StatoilHydro announced this Tuesday, November 25, ...

Brazil Refuses to Pay More for Paraguayan Energy Arguing Pacts Should Be Kept

Brazil has offered investments in Paraguay in exchange for not claiming a fair price ...

Brazil’s Dedini, a World Reference on Ethanol Technology

While pumps in gas stations worldwide churn out gasoline containing increasingly higher doses of ...

An Explanation for the Box-office Flop of Oscar-winner The Artist in Brazil: Ticket Shock

Silent movie The Artist may have won five Oscars last night, including Best Picture, ...

Brazil’s Petrobras Wants to Restart Talks from Beginning with Bolivia

When the new President of Bolivia, Evo Morales, takes office on January 22, Petrobras ...

Despite Recent Downturn, Brazil’s GDP Totaled US$ 622 Billion Up to September

The Brazilian Institute of Geography and Statistics (IBGE) announced that the Gross Domestic Product ...