Domestic liquidity increased by 8.9 per cent on an aggregate level in August, an encouraging monetary development amid an ongoing lack of confidence.
Monescope Egypt, a monthly tracker of monetary developments attached to Belton Financial, reports that M2 grew 8.9 per cent in August, compared to 8.1 per cent in July.
M2 is a broader classification of money, which includes physical money such as coins and currency and all time-related deposits such as saving deposits and non-institutional money funds.
An increase in local currency (LCY) term and saving deposits, which are the largest components of M2, has been cited as the main reason for M2 growth. Monescope Egypt says that LCY term and saving deposits grew 9.5 per cent compared to August last year and 0.6 per cent compared to July. July increased 8.9 per cent from the same month last year and 0.2 per cent compared to June. Foreign currency deposits grew 0.65 per cent compared to July and 6.2 per cent from August last year. Foreign currency deposits grew 0.2 per cent in July and 3.9 per cent during the last year to July.
Net foreign assets (NFA) contraction slowed and net domestic assets (NDA) experienced steady performance in August, Monescope Egypt reports.
Household LCY deposits, which are the largest component of LCY deposits, reached their highest level since the ouster of former President Hosni Mubarak in February 2011 increasing 14 per cent over the year to August, compared to a 13 per cent yearly increase up to July. Growth in household FCY deposits also increased by 5.8 per cent over a year to August, compared to a 4.2 per cent annual increase a month earlier.
Public and private business sectors are still performing poorly, reflecting weak confidence levels. Public and private business sector LCY deposits continued to contract, by 21 and 12 per cent on an annual basis respectively, while FCY deposits by the public and private sector increased 14 and six per cent on an annual basis respectively.
Monescope Egypt explains the disparity between public and private sector deposits in local and foreign currency as a result of continuing fears of a depreciation of the Egyptian pound.
Domestic credit growth remained stable at 20.6 per cent in August, on the back of banks continuing to finance government debt. Net claims on the government continued to grow by 36.4 per cent annually in August, slowing from an average 45 per cent growth from September 2011 to January 2012.
Total net foreign assets (NFAs) of the banking sector decreased by 37 per cent since August 2011, following a 21 per cent decline in commercial banks’ NFAs. The Central Bank of Egypt’s (CBE) NFAs increased by two per cent from July to August, though still 48.5 per cent below previous year’s levels.
Headline inflation dropped slightly to 6.2 per cent in September compared to 6.4 per cent last year, as a result of a slowdown of domestic activities. Annual inflation in clothing, housing, furniture and other goods eased, while food prices remained substantially high.
Monescope Egypt expects currency pressures to continue under a slowly recovering economy, with inflations remaining at manageable rates until the end of the year.
Rania Al-Mashat, sub-governor of monetary policy at the CBE, reported in a press release issued 18 October that the monetary policy committee will keep key policy rates unchanged such as the overnight deposit rate and the overnight lending rate at 9.25 and 10.25 per cent respectively, the seven day repository at 9.75 per cent and the discount rate at 9.5 per cent.