Back to the complete issue
Thursday, 31 October 2019

US economy dodges a bullet as repo rate took sharp rises this month

EXPLAINER- What is the repo rate and why does it matter? The repo rate is a fundamental node in the financial world, yet many don’t quite what it is and why it matters. Luckily, the Wall Street Journal (watch, runtime: 5:01) is on hand with a simple five-minute explainer. The repo rate is the interest rate charged on overnight borrowing between financial institutions, with treasuries acting as collateral. Why does it matter? It’s the oil that keeps the engines of money flow moving, as large financial institutions often need to resort to it to sustain operations. The implications of this system clogging would be catastrophic for the economy.

It’s importance was most recently highlighted last month, on 17 and 18 September, overnight lenders raised the repo rate significantly, freezing the system. Banks have placed the blame squarely on liquidity requirements placed on banks following the global financial crisis, as they were not allowed to dip into their reserves to lend out. They’ve used the issue to step up demands that the US Federal Reserve cut back on these regulations. The Fed’s solution? Injecting liquidity to the tune of USD 120 bn a day.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of HSBC Egypt (tax ID: 204-901-715), the leading corporate and retail lender in Egypt; EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Mashreq (tax ID: 204-898-862), the MENA region’s leading homegrown personal and digital bank; Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt; Hassan Allam Properties (tax ID:  553-096-567), one of Egypt’s most prominent and leading builders; and Saleh, Barsoum & Abdel Aziz (tax ID: 220-002-827), the leading audit, tax and accounting firm in Egypt.