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Brazil announces US$13 bil. credit stimulus

BRASILIA, Brazil--Brazil's central bank said Friday it would ease banks' reserve requirements, freeing up US$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 leftist 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 there was extra room for maneuver because total reserves in the banking system had risen from around US$87 billion in 2009 to nearly US$182 billion today, including a US$22.4 billion increase in the past 12 months.

Under the new rules, banks will be allowed to use up to 50 percent 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.

That could free up an additional US$6.7 billion, officials estimated.

Rules for lending to the vibrant small business sector were also eased.

Slow Growth, Rising Inflation

Brazil's economy registered a blistering growth rate of 7.5 percent in 2010, the year Rousseff was elected to replace her popular predecessor and mentor, Luiz Inacio Lula da Silva.

But the economy has since cooled, growing just 2.7 percent in 2011, one percent in 2012 and 2.5 percent last year.

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