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Brazil's central bank to add excess reserves to control liquidity

Banco Central do Brasil plans to use excess reserves to control liquidity and boost monetary policy efficiency, Reuters reported, citing comments from the central bank's chief Ilan Goldfajn.

Goldfajn said the bank will pay interest on excess reserves that are kept at the bank, but the move isn't meant to reduce Brazil's debt or fiscal deficit, the report noted.

The plan is part of multiple measures the central bank announced Dec. 20 to further revitalize Brazil's economy.

The regulator said it will work on reducing credit costs for consumers and businesses by improving regulations on payment agreements and making debt collection locations universally accessible.

Another key focus that was announced is a push to get state-owned banks to trim interest rates while spurring lending competition with private banks, O Estado de S. Paulo reported.

According to unnamed sources, this movement would be supported by further drops in the country's benchmark Selic rate in 2017, when the central bank is expected to implement further rate cuts, the report said.

State-run banks, however, need to keep an eye on profitability – especially at this moment when the National Treasury doesn't have sufficient resources to help them – and ensure that stricter credit rules don't further hamper the country's economy and the banking sector itself, the publication noted.

Nevertheless, the government reportedly believes banks will reduce costs in line with the actions that were disclosed, such as mandatory deposit requirements.

"The idea is to unify aliquots and deadlines. We'll work on it throughout 2017," Goldfajn said in a press conference in Brasília, Valor Econômico reported. According to the central bank chief, one example is matching the deadlines between term and time deposits and savings deposits, as well as simplifying the rules.