The Central Reserve Bank of Peru (BCRP) raised the lace requirements in national currency with the aim of complementing the recent increases in the reference rate and reinforcing monetary control.
Through CIRCULAR No. 0003-2022-BCRP, the increase in the minimum legal reserve was approved to 5.25% in February, 5.5% in March, 5.75% in April and 6% since May of this year. It should be noted that this rate has been rising since August 2021.
The reserve requirement is a monetary policy instrument that requires financial institutions to keep a percentage of their obligations (mainly deposits) in a vault or current account in the BCRP.
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To learn more about this increase in minimum legal reserve in soles, the professor and finance expert at the Pacific Business School, Jorge Carrillo, answers 3 key questions.
What is lace?
According to Carrillo, the reserve is the money that financial entities cannot lend and serves as a reserve. Let’s remember that S/9 of every S/10 that financial institutions lend is not money from the institution, but from the savers.
However, if a bank receives S/100 from a depositor, can’t lend all that money, because you must leave a percentage in your vault or in a BCR checking account.
This percentage -Carrillo continues- is precisely the reserve, which today is 5%, so if the entity receives S/ 100, it could only lend S/ 95.
What is the lace for?
In principle, the reserve allows financial institutions to have a reserve of money to deal with unexpected withdrawals of deposits. However, it is also a monetary policy tool of the BCR to reduce liquidity in the economy and control inflation.
What consequences would the increase in the reserve bring?
By being able to lend less money, the increase in reserve requirements makes the cost of credit more expensive, so it is expected that this increase will be passed on to the final customer, increasing the interest rates on loans in general, both for individuals and for companies.
Therefore, a second effect will be the reduction of placements by financial entities, affecting their financial income.
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