Brasília, 8/13/2003 (Agência Brasil - ABr) - The Brazilian Banking Association (Febraban) praised the decision to reduce mandatory bank reserves, saying it will have a positive effect on the economy. Last week, on August 8, the Central Bank announced it would permit banks to reduce mandatory reserves on sight deposits from 60% to 45%.

According to the chief economist at Febraban, Roberto Luiz Troster, the measure will mean more availability and reduced costs of credit by increasing liquidity at banks. Troster says that with the decision banks will now have R$20 out of every R$100 in deposits to loan out. Before that amount was only R$5.

Troster reports that bank interest rates have been falling since May and that the Central Bank decision will speed that process up causing a rise in demand for credit. That, he says, means that production will get a boost, there will be more jobs and an increase in income.

The chief economist at the CNA says he is forecasting GDP growth of over 3% for next year based on his belief that renewed growth will begin this year. "That will be an acceptable result if we consider the last two years. However, it is far below what Brazil has the potential to do," he says.

In conclusion, Troster says the reduction of the mandatory reserve limit is a good sign. "The additional amount available for loans is a breath of fresh air for the economy, but by itself it is not enough...The problem of taxes must be dealt with as well. What happen in Brazil is that when interest rates fall, taxes rise. That is something which must be corrected," he declared. (AB)