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Brazil Seeks to Boost Credit by $66 Billion

Reduction in capital requirements for banks is designed to generate US$66 billion in new loans in advance of presidential election; some think the move won't help.

By Matthew Malinowski and Raymond Colitt, Bloomberg | Updated on August 20, 2014

Brazil took steps to boost lending by as much as 150 billion reais (US$66 billion) as it strives to quicken growth without stoking inflation before presidential elections in October.

Policy makers reduced capital requirements for banks by 15 billion reais, a move that could generate as much as 140 billion reais in loans, according to central bank official Caio Ferreira. They also created incentives for banks to channel as much as 10 billion reais from reserves requirements into lending.

Today’s moves are similar to measures taken July 25 that drew criticism from analysts who were surprised by efforts to boost credit a week after policy makers kept interest rates unchanged at the highest level in more than two years. Central bank President Alexandre Tombini said earlier this month that controlling inflation with higher borrowing costs isn’t at odds with measures to free up credit.

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