By Patrick Werr / Reuters
CAIRO: Egypt’s central bank cut its reserve requirement on local currency deposits to 12 percent from 14 percent on Tuesday, in a move to provide banks with more cash to lend to the government and business.
The government has increased its borrowing to finance a burgeoning budget deficit since last year’s popular uprising, but that has driven up interest rates on treasury bills and also crowded out lending to the private sector.
Analysts said lowering the reserve ratio would free up funds sitting idle at the central bank and supply banks with more cash to lend, both to the government and to business.
“This move should help to bring T-bill yields down; they have already stabilized over the past month,” said Simon Kitchen, a strategist at EFG-Hermes.
The new ratio is effective as of Tuesday, the central bank said.
“This measure will provide permanent liquidity into the banking system and help ease credit conditions in the market,” the bank said on its website.
Analysts said 12 percent was still within safe limits.
“The average elsewhere in Arab countries is like 7 to 10 percent, but we have it higher here in Egypt,” said Radwa El-Swaify, an analyst at Beltone Research.
She said the fears of a run on banks immediately following the uprising had since receded, and the central bank could afford to loosen the reserve requirement.
“There has been some crowding out because of the treasury offerings that have been done by the government,” she said, adding that the central bank “wants to stimulate lending activity in general because they would like to jump-start the economy.”
A year of political turmoil has increased the government’s borrowing needs by hammering the country’s economy and lowering tax revenue while sparking worker demands for higher salaries and more benefits.
The average yield on one-year T-bills was 15.92 at the last auction on Monday, up from 10.44 percent immediately before the uprising that toppled president Hosni Mubarak in February 2011.
The government has forecast a deficit of LE 144 billion ($24 billion) in the current fiscal year, which ends on June 30, or about 8.7 percent of gross domestic product.