Egypt to reintroduce deposit operations, cancels repos

CAIRO Mon Apr 1, 2013 2:47pm EDT

A man walks past the Egyptian Exchange in Cairo April 1, 2013. REUTERS/Mohamed Abd El Ghany

A man walks past the Egyptian Exchange in Cairo April 1, 2013.

Credit: Reuters/Mohamed Abd El Ghany

CAIRO (Reuters) - Egypt's central bank said on Monday it intended to reintroduce deposit operations as a way to absorb excess liquidity, starting on Tuesday, in a monetary tightening move that economists said could help fight inflation and support a weakening currency.

The central bank later announced it had offered to take 14 billion Egyptian pounds ($2.06 billion) worth of seven-day deposits at a fixed interest rate of 10.25 percent at an auction on Tuesday.

The bank also said that repo operations would be "suspended unless conditions warrant otherwise".

Hit by political unrest that has hammered the economy, the Egyptian pound has lost 9 percent of its value against the dollar since late December when the central bank brought in a new system of dollar auctions that allowed the currency to weaken.

The pound is trading weaker still on the black market.

The central bank raised interest rates on March 21 in an effort to stem the pound's decline and curb inflation. It lifted both its main rates by 50 basis points, taking the overnight deposit rate to 9.75 percent and the overnight lending rate to 10.75 percent.

"They are starting to tighten monetary policy," said Mona Mansour, chief regional economist at CI Capital in Cairo. "Mainly it is to fight inflation."

Mohamed Abu Basha, economist at EFG-Hermes, added: "This is liquidity management because lately there has been excess liquidity in the Egyptian pound because of dollarization."

The central bank said on Sunday that Egypt's M2 money supply rose by 15.4 percent in the year to the end of February.

(Reporting by Asma Alsharif and Tom Perry; Editing by Rosalind Russell)

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