The Central Bank of Egypt (CBE) studies raising the reserve requirement for banks operating in Egypt, given the current economic conditions, a source close to the matter told Daily News Egypt.
The source added that the CBE could hike the reserve ratio by 3% to 21% up from 18% currently. “This will likely take place within the upcoming period, coinciding with the interest rate hike by 200 percentage points on Thursday.”
The mandatory reserve is a percentage of the total customer deposits in banks in local currency less than 3 years old. The reserve ratio regulates how much capital commercial banks are required to hold in their reserves. Central Bank of Egypt requires banks to deposit them with it without obtaining a return for the deposit.
The source indicated that the study of the increase comes intending to control inflation in Egypt, which exceeded about 40%, reaching record levels.
By raising the ratio, the CBE aims to restrict lending, tighten financial conditions, and support the currency, complementing the tightening stance that the central bank is maintaining.
In September 2022, the Central Bank of Egypt raised the reserve requirement for all banks to 18% up from 14%, for the first time in 5 years, as it increased in 2017 from 10% to 14%.
The Central Bank of Egypt reduced the reserve ratio by 4% in 2012, to enable banks to cope with the increased demand for liquidity after the 25 January Revolution.