June 15, 2018 / 10:17 PM / 5 months ago

Nicaragua's central bank seeks to bolster liquidity amid political crisis

MANAGUA, June 15 (Reuters) - Nicaragua’s central bank on Friday said it would lower reserve requirements for banks in an attempt to increase liquidity in the financial system, which has seen a sharp drop in deposits after two months of violent anti-government protests.

In a statement, the Central Bank of Nicaragua said the reserve requirement ratio for banks would be reduced from 12 percent to 10 percent, effective June 18.

The bank said the measure was aimed at promoting the stability and performance of the financial system and facilitating banks’ liquidity management. Since late March, Nicaraguan banks’ dollar deposits have dropped nearly 11 percent, or $441 million, to $3.6 billion, according to central bank data.

“The measure seeks to help banks meet the demand of clients who are withdrawing their deposits,” said Adolfo Acevedo, an independent economist based in Managua.

“People are withdrawing their deposits amid all this uncertainty. People prefer to keep their money in hand.”

Nicaragua’s government resumed talks with local civil groups on Friday to end two months of protests against President Daniel Ortega’s government that have left 164 dead and brought the economy of the poor Central American nation to a halt.

Eight weeks of violent demonstrations cost the economy around $650 million, or about 4 percent, of the country’s gross domestic product, according to an economist’s estimate cited by the government.

Standard & Poor’s on June 8 revised Nicaragua’s outlook to negative from stable, warning that the crisis would hurt the country’s economic performance this year and next. (Reporting by Alonso Soto; writing by Stefanie Eschenbacher; editing by Anthony Esposito and James Dalgleish)

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