Costa Rica: High reserve requirements would raise credit costs
Raising the minimum legal reserve requirements for commercial banks and financiers could translate into an increase in interest rates for customers.
Monday, April 21, 2008
The increase in reserve requirements is being considered in an effort to capitalize the Central Bank and give it more power to control inflation. The Executive Branch has sent a bill that would have this effect to the Legislative Assembly.
The Law of Capitalization of the Central Bank is being scrutinized by bankers and analysts, many of whom question the benefits attributed to it as an inflation-fighting mechanism.
According to Banks, the change in the calculation of the reserve will increase the costs of the financial intermediaries and will reduce the supply of credit.
The Central Bank announced that the daily legal reserve requirement will now be 12%, while it now stands at 16.25% weekly.
Experts say that it will take time for private banks to lower interest rates.
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