Increasing liquidity facilities for financial intermediaries by $909 million and reducing the ratio of local currency statutory reserves by 0.5% are some of the measures taken by the central bank in the face of the spread of Covid-19. With regard to the foreign exchange market, the central bank has been authorized to provide usd cash for $622.4 million, of which $400.0 million will be granted through reverse repurchase agreements for up to 90 days and the remaining $222.4 million for the release of legal reserve foreign exchange resources, the institution reported. The global economy contracted significantly in the first half of 2020 due to the intensification of the Covid19 health crisis on a global scale. In line with the above, uncertainty remains in households and businesses around the world about the future behaviour of incomes and employment, which consequently affects consumption and private investment. As part of the current monetary programme 2020-2021, which established the obligation to continuously monitor the impact of Covid19 on economic activity and employment and to take in a timely manner the additional measures that will reduce the impact on the Honduran economy, the Board of Directors of BCH has approved a change in the structure of the requirements for legal reserves and mandatory investments with the aim of: Other measures to maintain an adequate flow of credit to the private sector, in particular to micro, small and medium-sized enterprises, have been reported by the Central Bank of Honduras (BCH). In the declaration of 1. September 2020 he says that “. The BCH approved a reduction of the statutory reserve in national currency by 3 percentage points (pp) from 12% to 9%. In order to create an incentive for the redirection of liquid assets to priority sectors, BCH has set a 3% requirement for mandatory investments in national currency to register them with the total value of new loans granted to priority sectors guaranteed by the MSME Guarantee Fund. `The eligibility period for the calculation of the compulsory investments of these loans shall be determined between 24 September 2020 and 29 December 2021. This requirement can also be calculated with investments of accounting documents that will process the BCH in favor of any institution in the financial system,” the official document concludes.
Learn more about centralAmericaData`s market and economic situation monitoring system developed by Central American countries. Decree PCM-030-2020 of Article 24, which was amended twice and most recently on May 8 (PCM_041-2020), stipulates ±: “In accordance with the decisions of the Board of Directors of the Central Bank of Honduras (BCH) on the reduction of the legal obligation to build up reserves in national and foreign currency, it is mandated to establish an effective mechanism in real time for the allocation of funds from the legal reserve to the institutions of the banking system and national financial”. Banks are required to keep some of the resources they receive from depositors as a kind of reserve or contingency in the event of an eventuality affecting the system financially©. In three months, among other measures, BCH has reduced the legal reserve for mandatory investments by five points (6,500 million lempiras). But the measure is not enough to revive the economy in the current pandemic situation. This mechanism must “link directly to the applicant for new loans or to the refinancing of existing© loans©, so that the allocation of funds released from the legal reserve is determined for the priority sectors in this Executive Decree”. Banks do not receive interest on©this 12% reserve requirement, and central banks initially use it as collateral for savings and as a way to inject more money into the market in times of economic and financial crisis. Now, through PCM-030-2020, the government has approved a further reduction in the reserve requirement for BCH, both in Lempiras and in foreign currencies. Currently, the legal reserve is 12% (12 lempiras out of 100 saved in a bank or financial institution) and 24% in foreign currencies. The BCH will decide what percentage will be reduced, and this amount should be made available for new loans©or refinancing in productive activities affected by Covid-19.