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Central Bank Resolutions Nos. 96-04-02, 96-04-03 and 96-04-04 (the "Resolutions") were published in O.G. No. 35,939 dated 15 April 1996. These Resolutions abrogated BCV resolutions Nos. 93-01-03, 9601-04 and 96-0105, whereby the BCV Board of Directors set (i) the maximum interest rates to be charged by banks, financial institutions and savings and loan entities; (ii) the minimum rates that said institutions may pay for their borrowing operations; (iii) the maximum rates charged by credit card companies for financing provided to their cardholders; and (iv) the interest rate charged by the BCV in its discount, rediscount and advance operations. In summary, the Resolutions provide a free interest rate system, with no cap or bottom rates imposed. According to the Resolutions, banks, financial institutions and savings and loan entities may: (i) charge their clients for lending operations (loans, discounts, etc.) the interest rate agreed upon in each case, taking into account the financial market's conditions;
(ii) pay their clients for borrowing operations (deposits -loans, etc.) the annual interest rate agreed in each case, taking into account the financial market's conditions. The interest rate applicable to financing of credit cards shall be set in the statement of account to be sent by the credit card companies to their cardholders.
The interest rate applicable to financing of the agrarian sector, pursuant to the provisions of items (1) and (2) of Article 1 of Decree No. 601 of 15 April 1995 shall be equal to 85 percent of the average weighted lending rate charged by the 6 major commercial banks in the country, excluding the agrarian portfolio. BCV shall determine and announce the agrarian rate each week.
In turn, the Board of BCV shall determine and announce, through its electronic data transfer system or by telex, the interest rate to be charged in its discount, rediscount and advance operations. The rate for operations arising from placements in the agrarian sector shall be 85 percent of the rate for discount, rediscount and advance operations for other sectors.
During the first weeks these Resolutions have been in force, the financial-banking sector's borrowing rate was set at an approximate average of 35 percent per annum, while the lending rate reached 77 percent per annum.
In turn, BCV has granted yields near 80 percent per annum on money desk operations. It is worth noting that, when the BCV adopted similar resolution freeing interest rates in 1989, the Supreme Court of Justice (Decision dated 30 March 1989) declared the BCV's resolutions null and void. The decision of the Supreme Court was based on the criterion that pursuant to Articles 28 and 44 of the law then governing the BCV, the BCV was the public agency with the power and the duty to fix the maximum and minimum interest rates, and if it failed to do so "it cannot exercise one of its fundamental powers, as is that of creating and maintaining favorable monetary, credit and exchange conditions for the stability of the currency, economic balance and the orderly development of economy, as set forth in Article 2 of the respective law."
Although the law governing the BCV was partially amended on 4 December 1992 and Articles 2, 28 and 44, on which the Supreme Court's decision was based, were modified, the reasons that gave rise to the decree of nullity in 1989 have not disappeared, since (i) according to Article 21 of the current law, BCV's Board of Directors is empowered (and therefore has the duty) to "...Exercise the power of regulating interest rates according to the provisions of Article 46 of this law"; and (ii) according to said Article 46, BCV is the sole public agency empowered to regulate interest rates.
In any event, according to Article 43 of the law, BCV shall analyze on a quarterly basis the interest differential existing between the lending and the borrowing rates in the financial-banking system, and, if necessary, adjust said rates so they may produce reasonable yields to the national financing system.
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