time. This could push the deposit depletion point in time into the second half of the current decade. Estimates under two scenarios will be presented below. Interest-rate elasticity of SBPE deposits While additional measures to mobilize liquidity could be supportive in the short-term, the key driver of liquidity will be the dynamics of inflows of new savings. A return even to negative growth as still seen in the middle of the 2000s could pose significant liquidity risk to the system unless lenders are capable of accessing other funds to close any liquidity gaps. A considerable share of core deposits within SBPE deposits would facilitate liquidity management of lenders. The central question therefore is whether SBPE deposits are or ’core’ deposits. Interviewed lenders consider Poupanca deposits to a large extent stable, ’opportunistic’ i.e. core deposits with limited interest elasticity. Lenders quote ratios between 40 and 60%. The fact that Poupanca deposits can be drawn down for current account purposes, such as direct debit cards and current payments, speaks in favor of a core deposit interpretation. So does the strong market penetration (there are 93.4 million savings accounts in a population of 190 million), including in rural areas with limited alternative investment options. The tax exemption of the return on SBPE deposits could be viewed as another reason, although differences to other non-exempted instruments are broadly reflected in yield levels. However, SBPE deposits could be called daily and the 6% interest rate is applied regardless of the holding period. A 3-month minimum holding period was removed during the high inflation phase in the mid-80s and has never been reinstated after inflation dropped. Income from interest on SPBE deposits is tax exempt irrespective of the amount deposited and the holding period. All these elements make SBPE deposits volatile. Figure 6: Government bond savings passbook return gap drives savings deposit liquidity – SBPE - SELIC(+ 6%) gap and new savings deposits SBPE - SELIC(+ 6%) gap and new savings deposits capture, 2002 2010 (October) growth rate, 2002 2010 (October) – –
time. This could push the deposit depletion point in time into the second half of the current decade. Estimates under two scenarios will be presented below. Interest-rate elasticity of SBPE deposits While additional measures to mobilize liquidity could be supportive in the short-term, the key driver of liquidity will be the dynamics of inflows of new savings. A return even to negative growth as still seen in the middle of the 2000s could pose significant liquidity risk to the system unless lenders are capable of accessing other funds to close any liquidity gaps. A considerable share of core deposits within SBPE deposits would facilitate liquidity management of lenders. The central question therefore is whether SBPE deposits are ’core’ or ’opportunistic’ deposits. Interviewed lenders consider Poupanca deposits to a large extent stable, i.e. core deposits with limited interest elasticity. Lenders quote ratios between 40 and 60%. The fact that Poupanca deposits can be drawn down for current account purposes, such as direct debit cards and current payments, speaks in favor of a core deposit interpretation. So does the strong market penetration (there are 93.4 million savings accounts in a population of 190 million), including in rural areas with limited alternative investment options. The tax exemption of the return on SBPE deposits could be viewed as another reason, although differences to other non-exempted instruments are broadly reflected in yield levels. However, SBPE deposits could be called daily and the 6% interest rate is applied regardless of the holding period. A 3-month minimum holding period was removed during the high inflation phase in the mid-80s and has never been reinstated after inflation dropped. Income from interest on SPBE deposits is tax exempt irrespective of the amount deposited and the holding period. All these elements make SBPE deposits volatile. Figure 6: Government bond – savings passbook return gap drives savings deposit liquidity SBPE - SELIC(+ 6%) gap and new savings deposits capture, 2002 – 2010 (October) SBPE - SELIC(+ 6%) gap and new savings deposits growth rate, 2002 – 2010 (October)
693020ESW0P1220I0V80062220110Final.docx