Egypt Cuts Bank Reserve Ratio With Yields Near Record Low

Egypt cut the local-currency reserve requirement for banks to 10 percent today, the second reduction this year, to free up funds for lenders as government debt yields climb to near-record levels.

The central bank lowered reserve ratio from 12 percent to “further ease credit conditions in the market and provide additional permanent liquidity into the banking system,” it said in a statement. The rate was cut by the same amount in March, its first reduction in 13 years. The reserve requirement represents the amount of money a bank must keep aside as a percentage of deposits.

Local banks’ funding has come under pressure since the uprising that ousted Hosni Mubarak last year as lenders increased their holdings of government debt to compensate for a slump in purchases by foreign investors. Treasury-bill yields soared to record levels this year as the government sought to raise money to help finance its budget deficit.

“It’s positive but didn’t have a dramatic effect the last time they did it,” Liz Martins, Dubai-based senior economist at HSBC Middle East, said by phone. “It did contribute to yields coming down for a little while but we did see them edge back up and I think there are other reasons for those pressures to continue.”

The Arab country sold three-month treasury bills today at an average yield of 14.388 percent, the highest level since Bloomberg started tracking the data in 2006. It issued one-year securities last week at a near-record 15.899 percent.

The central bank will use all tools available to meet the liquidity requirements of local banks, Rania Al-Mashat, assistant sub-governor, said this month. The latest reserve-ratio change is effective from the so-called maintenance period starting June 26, the central bank said.

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