Brazil's Central Bank lists liquidity measures

Brazil's Central Bank lists liquidity measures

Corporate & Sovereign Strategy Coronavirus Economy & Policy Capital Markets Debt Loans Debenture Bonds Regulation Brazil Latin America

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Brazil's Central Bank can provide up BRL1.27 trillion ($226 billion) in liquidity to lessen the financial impact of the COVID-19 pandemic, but additional monetary measures must be adopted gradually, according to a presentation from Central Bank President Roberto Campos Neto on Wednesday.

The bank has provided BRL346 billion through the program so far, including BRL209 billion through lower reserve requirements and BRL2.2 billion through looser regulations, according to a presentation at an event hosted by the Brazilian-American Chamber of Commerce.

Loans backed by credit guarantees total BRL50.5 billion but could reach BRL670 billion, according to the presentation, while a new term deposit with special guarantee program accounts for BRL18.6 billion but could inject BRL200 billion into the financial system.

Loans backed by debentures currently represent BRL3 billion of liquidity support out of a potential BRL91 billion, while one-year repos backed by government bonds could more than double from the current BRL23.2 billion to BRL50 billion, according to the presentation.

Capital relief, such as the reduction in capital for credit operations by small businesses, are estimated to have increased credit by BRL1.22 trillion but could reach BRL1.35 trillion, according to the Central Bank.

Providing more flexibility in credit renegotiations could add another BRL3.2 trillion from BRL881 billion currently. New measures listed in the presentation include asset purchases in the secondary market and real estate-backed loans, which could add a BRL60 billion.

The Central Bank's liquidity supports represents 17.5% of the Brazil's GDP, compared to 3.1% in Mexico, while loan support represents 20% of GDP, compared to 18.3% in Argentina and 3.9% in Mexico, according to two graphs in the presentation.

Monetary policy is another tool being used by the Central Bank to spur economic activity. In August, the monetary policy committee, known as Copom, cut the benchmark Selic interest rate to its lowest ever level of 2% to help stimulate the economy. 

Referring to the decision, Campos supported the use of an "unusually strong monetary stimulus" but said "prudential and financial stability reasons" meant the remaining space for monetary policy stimulus remains small.

"Possible future adjustments to the current degree of monetary stimulus would occur with additional gradualism and would depend on the perception of the fiscal trajectory, as well as on new information that changes the committee's current assessment about prospective inflation," he said in the presentation.


Source: Banco Central do Brasil