BRASILIA: Brazil’s central bank said on Friday it would ease banks’ reserve requirements, freeing up $13 billion to stimulate lending and boost an economy facing its fourth year of sluggish growth.

The new measures, which also loosen the rules on lending to small businesses, come as President Dilma Rousseff heads into October elections in which she is seeking a second four-year term.

“The central bank decided to adopt measures to improve the distribution of liquidity in the economy,” the bank said. It attributed the move to “recent moderation in credit concessions, relatively low levels of default and the reduction of risk levels in the financial system”.

It said the requirements could be loosened because total reserves in the banking system had risen from around $87bn in 2009 to nearly $182bn today, including a $22.4bn increase in the past 12 months.

Under the new rules, banks will be allowed to use up to 50 per cent of reserves for credit operations, new loans and diversified investment portfolios.

The bank also changed the way it calculates the reserves banks must keep on hand to cover their outstanding loans, basing the amount on the number of payments remaining rather than the total term of the loan.

Published in Dawn, July 26th, 2014