Saturday, December 4, 2010

The Reserve Requirement in action!! Hey, it is as rare as Haley's Comet...Let me enjoy the spectacle that is a Monetary Policy tool rarely employed by a Central Bank...

The reserve requirement is the Monetary Policy tool of last resort for the US Federal Reserve to employ to control the money creation process in the banking system, but it is used by other Central Banks around the world on occassion.  Click HERE for more detailed explanation of the Reserve Requirement and click HERE for my explanation of the Required Reserve and how it affects lending by the banking system.

From WSJ: Brazil Joins China in Push to Cool Overheating Economy

""Brazil's central bank rolled out a series of measures to tame rapid credit growth and prevent inflation pressures, joining other large expanding economies such as China that are trying to curb rising prices and fast moving capital inflows.
Brazil's Central Bank President Henrique Meirelles said the directives announced Friday, which aim to withdraw some 61 billion Brazilian reais ($35.88 billion) from the financial system, will have an impact on inflation and economic activity, and would also be felt in interest rates.

The Central Bank said it would raise reserve requirements on term deposits to 20% from 15%...
 "As we have seen during the past year, central banks have often been using reserve requirements as the first step down the tightening path, and such hikes have almost universally been followed by policy rate hikes as well,." said Win Thin, Global Head Of Emerging Markets Strategy at Brown Brothers Harriman in New York.""
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