Venezuela: Reserve Requirements, GFC

Leading up to the Global Financial Crisis (GFC), the Banco Central de Venezuela (BCV) sought to tamp down inflation by raising its interest rate target and by raising the marginal reserve requirement for banks, which it had introduced in 2006. By late 2008, the GFC began to hit Venezuelan banks and the country's public oil producer (PDVSA). Widespread deposit withdrawals squeezed banks and pushed the interbank lending rate to 28%. The BCV responded in December 2008 by lowering the marginal reserve requirement, applicable to deposits above 90 billion bolivars (USD 4.2 million), from 30% to 27% of deposits. It held the minimum cash reserve requirement at 17%. The global recession also cut into the revenue of PDVSA, the country's biggest exporter. To free up bank liquidity for the purchase of PDVSA bonds and stimulate the economy, the BCV cut the marginal requirement three times between June and October 2010, setting it equal to the minimum requirement of 17%. The first cut in the marginal reserve requirement, from 30% to 27%, released VEF 6 billion (USD 2.8 billion) of liquidity into the financial system.