The Central Bank of Egypt (CBE) said the new reserve requirement ratio, lowered to 10% from 12%, will be effective from tomorrow, the second reduction since April. CBE reduced reserve requirement ratio from 14% to 12% last April.
A number of bankers hailed such move taken to strengthen banks’ liquidity which dropped due to investing in government debt instruments (treasury bills and bonds) to finance the state’s general budget.
Ismail Hassan, chairman of Misr Iran Bank and former governor of Central Bank of Egypt, said such decision taken by CBE to reduce RRR will highly contribute in increasing liquidity and accordingly expanding in offering finances to productive sectors. This will definitely boost the national economy.
The costs that banks incur will fall after the reduction of RRR as ample liquidity will enable them finance more projects, Hassan affirmed. He suggested that banks shall use the extra liquidity in financing private-sector and developmental projects instead of investing them in government debt instrument as the country has long depended on banks without setting a precise plan for foreign borrowing.
Abdel Megid Mohy El-Din, deputy chairman of Egyptian Arab Land Bank, said that reducing RRR will increase lending ratios, expecting Egyptian economy to recover in the upcoming period. In addition, banking liquidity and profitability will increase.
