Bloomberg News

Venezuela’s Overnight Bank Lending Rate Falls to 3-Year Low

June 21, 2011

(Adds analyst’s comments in third paragraph.)

June 21 (Bloomberg) -- Venezuela’s overnight bank lending rate fell to the lowest since 2008 as President Hugo Chavez’s push to boost bank lending swelled the amount of cash in the financial system.

The rate at which banks lend to each other declined to an average of 0.09 percent today from 0.1 percent yesterday, said an official at the central bank, who asked not to be identified because he isn’t authorized to speak publicly. That’s the lowest level since June 20, 2008. The rate has fallen for 8 consecutive days from 10.5 percent on June 9.

“There’s an excess of liquidity in the system so there aren’t any banks looking to borrow in the market,” said Jose Grasso, president of Softline Consultores, a Caracas-based banking research and consulting firm. “Banks are more focused on lending than borrowing right now.”

Chavez ordered the central bank to reduce reserve requirements in April to free up as much as 10 billion bolivars ($2.3 billion) to be used for lending to build homes in a bid to pare an estimated 2 million unit housing deficit. Bank lending rose 33.8 percent from a year earlier in May, according to Softline.

The monetary base, which measures the amount of bolivars in circulation, has risen 10 percent in nominal terms this year to 324.3 billion bolivars on June 10, the latest available data from the central bank show. The overnight rate has averaged 9.7 percent in 2011 and 6.3 percent in June.

Government plans to sell an additional 45 billion bolivars of debt this year will likely drain liquidity from the system and cause the rate to rise, Asdrubal Oliveros, director at the economic research and consulting firm Ecoanalitica, said.

“These high liquidity levels indicate that the government will increase spending and have no problem selling the bolivar- denominated debt to be issued locally to banks,” he said.

--Editors: Marie-France Han, Brendan Walsh

To contact the reporter on this story: Corina Rodriguez Pons in Caracas at crpons@bloomberg.net; Daniel Cancel in Caracas at dcancel@bloomberg.net.

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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