Tighter Reserve Requirements in Brazil

December 3, 2010

COPOM, Brazil’s monetary policy committee, meets next Tuesday-Wednesday, having already lifted the benchmark Selic rate by 75 basis points each last April 28 and June 9 followed by 50 bps on July 21 but not at  at the subsequent meetings on August 31 and October 20.  In advance of next week’s meeting, reserve requirements were raised today to 20% from 15% on time deposits and to 12% from 8% on cash deposits.  The actions drain bank liquidity and hopefully will curb excessive credit demand against the background of above-target CPI inflation.  So the question becomes whether today’s action is intended as a substitute for a fourth rate Selic rate hike next week or to complement such a move.  Analysts lean toward the former but believe a rate hike will be delayed no more than briefly.  GDP is likely to expand about 7.5% in 2010 in South America’s largest economy.

Copyright 2010 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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