Egypt’s central bank has removed Wednesday caps on foreign exchange deposits and withdrawals for companies importing essential goods on Wednesday, a day after lifting caps on withdrawals by individuals, the latest move to increase liquidity in the dollar-starved economy.
Egypt, which relies heavily on imports, has been struggling to revive its economy since a 2011 uprising drove away foreign investors and tourists – major sources of hard currency.
Its reserves tumbled from $36 billion in 2011 to $16.5 billion in February and the country has been wrestling with a currency crisis that is causing dollar liquidity to dry up in the banking sector.
“It has been decided to cancel the caps… on corporates that import essential goods, while keeping the caps imposed on corporates that imports other goods,” the central bank said in a statement on Wednesday.
The move was followed by state-run National Bank of Egypt raising the interest rates on its three-, five- and seven-year dollar certificates of deposits, one banker said.
Bankers in other state and private banks said that the move will result in other banks following suit.
“All banks will follow not to lose their competitiveness. Clients can now withdraw their money and in order to avoid a run on the bank, banks will be offering a sweetener of higher interest rates,” said one banker who declined to be named.
“This could also mean that interest rates will rise big time on the Egyptian pound in order not to make the dollar more attractive. People are expecting around a 1 percent hike next week,” he said.
The central bank is resisting a devaluation of the pound, keeping it at 7.7301 pounds per dollar while the rate on the black market hovers around 9.8 pounds per dollar this week.
In a move intended to increase liquidity in the market the central bank on Tuesday removed limits on how much individuals can withdraw or deposit in foreign currencies at banks.
“The initial (reactions) of the bank’s decisions started to show in the early hours of its implementation today, as the currency market appeared calm after the (people) realised that they can withdraw and deposit at anytime,” state newspaper Al Ahram quoted Central Bank Governor Tarek Amer as saying.
Tuesday and Wednesday’s moves would reverse caps that were imposed a year ago to fight a black market for dollars.
The central bank had capped the amount that could be deposited in banks at $50,000 a month. It also set a $10,000 a day limit on withdrawals for individuals and a $30,000 a day limit for corporate withdrawals.
Late on Tuesday Central Bank Governor Tarek Amer told a local newspaper that the bank aimed to increase Egypt’s foreign reserves to $25 billion by the end of 2016 and that removing the caps on individuals would “greatly contribute” to that goal.