The Central Reserve Bank of Peru (BCR) approved the increase of the minimum legal reserve to 5.25% in February, to 5.5% in March, to 5.75% in April and to 6% since May of this year.
The reserve allows the financial institution to have a reserve of money to face unforeseen withdrawals of deposits; it is also a monetary policy tool of the BCR to reduce liquidity in the economy and control inflation.
What does this increase mean? Jorge Carrillo Acosta, professor and finance expert at the Pacífico Business School, explained that the reserve determines how much money, in percentage terms, banks can lend to third parties from our savings.
“Let’s remember that S/9 of every S/10 that financial institutions lend is not money from the institution, but from savers,” he clarified.
“However, if a bank receives S/100 from a depositor, it cannot lend all that money, since it must leave a percentage in its vault or in a BCR checking account. This percentage is precisely the reserve, which today is 5%, so if the entity receives S/100, it might only lend S/95″, Carrillo Acosta specified.
The finance expert also warned that 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 as well as for companies.
“Therefore, a second effect will be the reduction of placements by financial entities, affecting their financial income,” he specified.
Given
This rate has been rising since November 2021, when it went from 4% to 4.5%, and then rose to 4.75% in December and 5% in January 2022.
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