As of April, banks will have more money to borrow. The Central Bank (BC) has reduced from 40% to 25% the portion of compulsory demand deposits that financial institutions are required to collect from the monetary authority, reports Agência Brasil. The share of deposits in rural savings that should be passed on to the Central Bank fell from 21% to 20%. For common savings the other types of deposits, the rate increased from 24.5% to 20%.
According to the BC, the change releases R $ 25.7 billion in the financial system and makes the compulsory return to the levels prior to the 2008 global financial crisis. Compulsory is the portion of deposits that banks are required to keep in a account with the Central Bank and represents one of the tools of the monetary authority to regulate the amount of money in circulation in the economy.
Through the compulsory, the CB ensures that interest from financial institutions is aligned with the Selic rate – basic interest of the economy. By lowering the rate, the monetary authority frees up more resources to borrow.
According to the head of the Department of Banking Operations of the BC, Flávio Túlio Vilela, the reduction of the compulsory ones can result in the decrease of the banking spread – difference between the interest that the bank pays to the investor that lends to him and the rates charged of who contracts operations of credit.
“It is always easier to imagine the reduction in the spread with the resources being directly in the [financial] institutions and not here [retained in the Central Bank]. Being in the hands of institutions, they can study the best way to use these resources and believe that a significant part goes to the credit market, “he said.