Central Bank may release $124 billion into economy
Financial institutions will be allowed to borrow from the Central Bank. Approximately $124 billion is expected to be released into the economy. Authorization was given by the National Monetary Council (CMN) after an extraordinary meeting on Wednesday (Apr. 1).
Loans will have institutions’ credit portfolios as guarantee, with operations due in 30 to 359 days.
According to the Central Bank, the Special Temporary Liquidity Line aims to provide the liquidity “necessary for the national financial system to hold steady amid the increase in the demand in the credit market, stemming from the COVID-19 crisis.”
In a note, the Central Bank also reported that such special liquidity lines have proved a tool widely used by the world’s main central banks to tackle the crisis.
Credit to be accepted is low risk, assessed as AA, A, and B, with guarantees above the amount borrowed, proportionate to the risk of credit operations offered as guarantee.
Federal Reserve
During its extraordinary meeting, the council also allowed the Central Bank to strike a swap deal with the US Federal Reserve.
On March 19, the two central banks had unveiled a net swap line in US dollars adding to $60 billion, expanding the potential offer of dollars in the domestic market. The agreement should last at least six months, “The liquidity line adds to the set of tools available to the Central Bank to cope with the high volatility of markets as a result of the COVID-19 pandemic,” the Central Bank declared.
