UPDATE 2-Brazil central bank eases credit as economy stagnates

Wed Aug 20, 2014 9:34am EDT

(Adds additional central bank plan details, adds currency and other market prices)

SAO PAULO/RIO DE JANEIRO Aug 20 (Reuters) - Brazil's central bank moved to increase the amount of capital available for commercial loans by at least 25 billion reais ($11.1 billion) on Wednesday, part of efforts to boost a stagnant economy, the bank said.

The bank took two steps. The first was to cut the amount of capital commercial banks must keep on deposit with the central bank by about 10 billion reais. This is in addition to 30 billion reais freed up in a similar manner July 24.

Second, the bank cut the amount of capital that banks must have to back commercial loans. This is expected to add another 15 billion to lending over time, the same amount expected from a similar measure in July, the bank said at a press conference in Brasilia.

Wednesday's additions bring the total amount of potential stimulus in the last month to 70 billion reais ($31.1 billion).

Brazil's economy is expected to grow 0.79 percent this year, according to a central bank survey released Monday, which would be the lowest rate of annual gross domestic product (GDP) growth since 2001.

The central bank has raised interest rates as well as the amount of capital commercial banks must keep with the central bank as a reserve in recent years, efforts taken to rein in consumer price inflation.

The measures though have not prevented Brazil's inflation rate from reaching the 6.5 percent upper limit of the bank's inflation target band. The target band is 4.5 percent plus or minus two percentage points.

Meanwhile, Brazil's economy has stalled, leading to calls for Brazilian President Dilma Rousseff, who is seeking re-election in October elections, to ease credit to boost growth.

In July, industrial output slipped 6.9 percent.

Brazil's currency, the real, weakened 0.2 percent against the U.S. dollar to 2.2535 bid in early trading on Wednesday. Brazil's benchmark Bovespa index of the Sao Paulo stock exchanges most-traded shares rose 0.23 percent.

(1 dollar = 2.2496 Brazil reais) (Reporting by Patricia Duarte in Sao Paulo and Jeb Blount in Rio de Janeiro; Writing by Jeb Blount in Rio de Janeiro; Editing by Chizu Nomiyama and Nick Zieminski)

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