Brazil Raises Bank Reserve Requirements on Deposits

Brazil’s central bank raised reserve requirements on cash and time deposits to slow consumer lending that’s growing 20 percent annually and prevent a credit bubble.

The reserve requirement on time deposits will rise to 20 percent from 15 percent and an additional requirement for cash deposits will go to 12 percent from 8 percent, according to a statement distributed in Brasilia today. Banks will be required to use more capital to back consumer loans that exceed 24 months. The steps will remove 61 billion reais ($36 billion) from the economy.

Central bank President Henrique Meirelles said the measures bring reserve requirements to a level that is slightly tighter than before the 2008 global credit crunch. The moves will help slow inflation, he told reporters.

“We have very heated domestic demand, and it has to do with bank lending,” said Zeina Latif, a senior economist with RBS Securities Inc. in Sao Paulo. “Bank lending to consumers is too strong, it’s growing fast with no signals of deceleration.”