CBE withdraws $19.56bln from banks in open market operations at 27.75% interest rate

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Egypt - The Central Bank of Egypt (CBE) withdrew EGP 947.1bn from 32 banks in open market operations on Tuesday, at an interest rate of 27.75%. This action follows the CBE’s recent decision to amend its bid acceptance policies.

Last week, the CBE secured EGP 1.119trn in liquidity from 32 banks in a similar open market auction.

The Central Bank issued new instructions regarding the regulations governing the main operation for deposit linking (Main Operation) in open market operations. Previously, these operations were conducted through a fixed-rate tender every week, where the volume of the operation was announced, and bids were accepted based on the proportion of each bank’s bid to the total bids submitted, applying the main operation rate.

The CBE clarified that, in its pursuit of international best practices for managing liquidity surpluses within the banking system and enhancing the impact of monetary policy decisions, it has decided to change the bid acceptance method for the main operation for deposit linking from the proportional allocation method to the full allotment method. This change is effective from Tuesday, 23 April 2024, with the results of each operation to be published on the Central Bank of Egypt’s official website.

The CBE emphasized that it will continue to manage liquidity in a manner that ensures balance and aligns with its operational target of maintaining the average overnight interbank rate around the main operation rate, which is the average corridor rate.

In related news, a report by the Central Bank revealed that reserve money (MO) reached EGP 1.965trn in June 2024, compared to EGP 1.689trn in December 2023, marking an increase of EGP 275.7bn.

Reserve money comprises currency in circulation outside the Central Bank’s vaults and banks’ deposits in local currency held by the Central Bank. Reserve money (MO) is used as an intermediate operational target for the Central Bank’s monetary policy in managing local liquidity.

The report added that currency in circulation outside the Central Bank’s vaults rose to EGP 1.328trn in June, compared to EGP 1.1145trn in December 2023.

Additionally, banks’ deposits in local currency stood at EGP 636.193bn in June 2024, up from EGP 543.5bn in December 2023.