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What Will the Central Bank's Withdrawal of Liquidity from Egyptian Banks Lead To?

رقميون • 04 يوليو 2024 46 views • ⏱ 5 min read • 💬 0 comments

الى ماذا سيؤدى سحب البنك المركزى السيولة من البنوك المصرية

الى ماذا سيؤدى سحب البنك المركزى السيولة من البنوك المصرية
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What Will the Central Bank's Withdrawal of Liquidity from Egyptian Banks Lead To?

The Central Bank of Egypt announced today, Tuesday, the withdrawal of liquidity worth 1.082 trillion pounds in an open market tender, from 31 banks, following the adjustment of bid acceptance policies at an interest rate of 27.75%. This was preceded by the Central Bank's announcement of withdrawing liquidity worth 3.7 trillion pounds across 5 previous open market tenders, after adjusting bid acceptance policies at the same interest rate, up to May 21.

Considering the other tenders up to July 2, 2024, the total amount withdrawn by the Central Bank from banks reaches 8 trillion, 935 billion, and 200 million pounds, at a fixed interest rate of 27.75%, starting from March 19, 2024.

The Central Bank has issued new instructions regarding the rules governing the main operation for binding deposits in the open market operations it was conducting. These instructions include announcing the volume of the operation the Central Bank will conduct, accepting bids based on the ratio of the bid submitted by the bank to the total bids submitted, and applying the main operation rate to them.

Change in the Central Bank of Egypt's Policy for Accepting Bids and the Rise in Domestic Liquidity Volume

The Central Bank of Egypt announced a change in the method of accepting bids in the main operation for binding deposits, where all submitted bids will now be accepted instead of pre-allocation. This change aims to follow better international practices in managing banks' excess liquidity and to strengthen the impact of monetary policy decisions. The results of each deposit-binding operation will be published on the Central Bank's website, and this policy will begin effective April 23, 2024.

On June 27, the Central Bank announced that the volume of domestic liquidity in the Egyptian banking sector rose to 10.352 trillion pounds at the end of May 2024, compared to 8.877 trillion pounds at the end of December 2023.

A rise in domestic liquidity was recorded from 8.877 trillion pounds at the end of December to 8.989 trillion pounds at the end of January 2024, then to 9.124 trillion pounds at the end of February, reaching 9.988 trillion pounds at the end of March, 10.097 trillion pounds at the end of April, and 10.352 trillion pounds at the end of May.

The Central Bank noted that the money supply reached 2.570 trillion pounds at the end of May, compared to 2.370 trillion pounds at the end of 2023, and the currency in circulation outside the banking system reached 1.197 trillion pounds at the end of May, compared to 1.068 trillion pounds at the end of last year.

Strengthening the Central Bank's Control Over Inflation by Raising the Value of Liquidity and Withdrawing It from Local Banks

The Central Bank Raises the Value of Liquidity Withdrawal to Curb Inflation and Expand Lending

According to a report by “CNN Arabic”, the Central Bank has increased the value of the liquidity it withdraws from the local currency, with the aim of controlling inflation rates according to its strategic plan. The Bank aims to reduce the expansion of lending to individuals and companies by withdrawing liquidity from local banks.

The Central Bank and the Decision to Withdraw Liquidity from Egyptian Banks

Local banks currently have an excess of liquidity in local currency, due to high bank returns from government debt instruments and the maturity of some high-yield savings certificates, in addition to increased remittances from Egyptians working abroad.

Increasing the amounts to be withdrawn by the Central Bank during its tenders will contribute to reducing money supply growth over the coming months and will also help restrict the expansion of banks in lending operations. This is expected to have a positive effect in curbing rising inflation rates.

Decline in Inflation in Egypt and Expectations of Continued Slowdown in the Near Future

According to data from the Central Bank of Egypt, the figures indicate a decline in Egypt's core inflation rate to 31.8% on an annual basis in April, compared to 33.7% in March.

“CI Capital” expects Egypt's inflation rate to continue slowing gradually over the coming months, and this slowdown may continue until the end of the year, while it ruled out a sudden decline in rates.

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What Will the Central Bank's Withdrawal of Liquidity from Egyptian Banks Lead To?

What Will the Central Bank's Withdrawal of Liquidity from Egyptian Banks Lead To?