CAIRO: Egypt’s central bank said it had suspended its deposit auction yesterday and would hold a repurchase agreement (repo) auction in its place, a move bankers said was designed to give some banks access to more liquidity.
Most foreign investors have fled Egypt since the uprising, forcing the government to rely on local banks to finance a budget deficit which has mushroomed to some 12 percent of GDP in the financial year that ends this month, stretching to the limit the banks’ ability to lend.
“I think liquidity is concentrated in some banks, and others are in need of liquidity,” said a dealer at the treasury of a Cairo-based bank. Repos add liquidity to the banking system while deposit auctions drain it.
The central bank introduced repos in March 2011 to boost liquidity weeks after the popular uprising that ousted Hosni Mubarak spread turmoil throughout Egypt’s financial markets.
Its last repos matured on April 2 of this year, when the central bank introduced the deposit operations instead.
Central bank officials declined to comment on the reason for Tuesday’s switch to repos.
State-owned banks, which account for nearly half of bank assets in Egypt, seem to have been buying large quantities of treasury bills and bonds, while private banks have tended to buy less, creating an imbalance in funds available in the banking system, bankers said.
The central bank sold 5bn Egyptian pounds ($715m) in 7-day repos yesterday at a fixed rate of 10.25 percent after having accepted 6bn pounds in 7-day deposits at an offering on June 4.
Reuters
