CBE moves against dollarization amid signs the parallel market for greenbacks is trying to make a comeback.
CBE moves against dollarization amid signs the parallel market for greenbacks is trying to make a comeback. There are signs a parallel market for the USD has reappeared in recent days as the covid-19 outbreak places strain on Egypt’s sources of foreign currency, Reuters reports. While banks and currency exchanges were offering EGP 15.75 to the USD, some unofficial trades saw the greenback change hands for EGP 16.15, bankers and businessmen told the newswire.
Naeem Brokerage said that the USD was trading at EGP 16.10-16.15 in the parallel market, but that trade was slow as importers delay orders. “Banks have begun rationing their FX inventories (prioritizing on the imports of necessities) adjusting to the drop in inflows from tourism and hot money outflows,” it wrote in a note. “With interbank (foreign exchange) liquidity expected to dry up further in the coming months, we expect the CBE to intermittently plug the deficit by selling USD to the banks,” it said.
The coronavirus outbreak is putting pressure on Egypt’s key sources of foreign currency, including tourism, which brought in USD 12.5 bn last year. Covid-19 will also put pressure on remittances (the nation’s key source of FX) and Suez Canal revenues.
CBE acts against dollarization: The Central Bank of Egypt (CBE) has told commercial banks to cut interest on USD deposits to 1% above the London interbank rate (LIBOR) instead of 1.5%, Reuters reports, citing six bankers who spoke anonymously. The measure aims to limit dollarization on the back of the central bank’s decision last week to cut interest rates by 300 bps, one banker said. LIBOR is the rate of interest at which global banks lend to each other over short-term periods, and is also used as a benchmark for loans and savings across the world.
And banks are trying to deter people from putting their savings into USD certificates: The National Bank of Egypt (NBE) has reduced the return on three- and five-year USD savings certificates by 1.75-2.25%, and has launched alongside Banque Misr one-year savings certificates in EGP with a fixed 15% rate of return. The Federation of Egyptian Banks’ new chairman Mohamed El Etreby said in an interview on Sada El Balad on Sunday that Egyptians have so far bought EGP 4 bn worth of the certificates (watch, runtime: 20:10).