The use of reserve requirements as a policy instrument in Latin America

14 March 2011

In recent years, some central banks in Latin America and other emerging market regions have used reserve requirements to pursue monetary or financial stability goals. In the past decade, they have raised reserve requirements in the expansion phase of the cycle to tighten monetary conditions without attracting capital inflows. After the bankruptcy of Lehman Brothers, they lowered them sharply, helping to restore market functioning. In some cases, the use of reserve requirements can complement the policy rate in the conduct of monetary policy. However, there are trade-offs in the use of this instrument.

JEL classification: E51, E52, E43