OTTAWA (Bloomberg) -- Central banks from Ottawa to Brasilia are injecting cash into their economies in a bid to contain the spread of the U.S. credit crisis.

The Bank of Canada said on Friday it will raise the amount of money it’s putting in the banking system to deal with strained credit markets to at least C$20 billion (18.5 billion dollars), from C$8 billion.
Policymakers have joined counterparts around the world this week to step up efforts to restore normal lending, a task made tougher by the problems of banks such as Brussels-based Dexia SA, the world’s biggest provider of loans to local governments. The U.S. Congress passed and President George W. Bush signed a $700 billion bank rescue package in a bid to ease the credit crunch.
“They have to support the system in light of what’s happened in the U.S.,” said Francisco Diez, director of emerging markets trading at RBC Capital Markets in Toronto. “The situation has changed dramatically in the last two weeks.”
The cost of loans between private banks has surged worldwide, threatening to choke off lending to businesses and consumers, and in turn dent economic growth.
The difference in yield between Canada’s three-month treasury bill and the three-month dollar London interbank offered rate was at 2.85 percentage points for a second day on Saturday, the highest since at least October 1990, signaling greater perceived lending risk.
-------- Massive liquidity
Chile’s central bank said Sept. 30 it will offer 500 million dollars in currency swaps to lower financing costs for banks and companies. The swaps allow banks to access dollars from the central bank in exchange for assets. Saturday, central bank President Jose De Gregorio said Chile is ready for global turmoil and can provide “massive” liquidity.
“We have seen the central banks of Chile and Brazil taking measures because there is a lack of liquidity in their markets,” said Rafael de la Fuente, a senior economist at BNP Paribas SA in New York.
Latin American currencies and the Canadian dollar have slumped this week on concern the U.S. rescue package won’t avert a global recession.
“The cash shortage in the U.S. has spread to Europe, and now it’s spread to emerging markets,” said Claudia Calich, who manages one billion dollars in emerging-market debt for Invesco Inc. in New York. “They’re reacting later because the liquidity squeeze arrived later.”
----------- Peru’s response
Peru’s sol sank below the 3-per-dollar level for the first time this year on Friday, prompting the central bank to pour a record 443.8 million dollars into the foreign exchange market to stem the decline. Central bank president Julio Velarde said on Saturday in an interview in Lima he may cut reserve requirements for bank deposits, giving the Andean country’s banks more liquidity as international loans become costlier.
“Central banks are seeing what’s happened in the U.S. and are injecting liquidity because of capital flight,” said Mariano Lamothe, economist at Abeceb.com in Buenos Aires. “There isn’t a run on the banks, but there is capital flight as people look for greater security.”
A global economic slowdown will mean less demand for the commodities that account for much of Latin America’s exports. Peru is the world’s third-largest copper and zinc producer, the biggest silver producer and fifth-biggest gold miner.
The UBS Bloomberg CMCI Index of 26 raw materials had its worst week since at least 1997 amid skepticism that the U.S. government bank bailout plan won’t be enough to stimulate economic growth and demand for commodities.
----------- Region-wide suffering
“All of Latin America is going to suffer from this crisis,” said Miguel Kiguel, former undersecretary of finance for Argentina. “The impact on Latin America will depend on how much commodity prices decline and how long they stay there.”
In Canada, where half the country’s exports are commodities such as crude oil and wheat, the dollar had its biggest weekly decline since at least 1971. Canada’s economy is already set to grow just 1 percent this year, according to the Bank of Canada, as weak U.S. demand pares exports of manufactured goods such as cars and lumber.
The Bank of Canada, which stopped making emergency loans to banks earlier this year, saying they were no longer needed as credit markets had improved, is now making long-term plans to add more cash. Weekly auctions are scheduled for the rest of the year.
“The Bank will continue to provide term liquidity as long as conditions in financial markets warrant,” the central bank said Saturday in a statement from Ottawa.