Central Bank Of Egypt Eases Forex Caps For Corporations

As a measure to improve liquidity in Egypt’s economy, the Central Bank of Egypt has decided to remove the caps that were applicable on foreign exchange deposits and withdrawals by companies that import essential goods.

The 2011 uprising in the nation has kept away both foreign investors and tourists from the country, causing a decline in its economy and dollar reserves.

The country’s foreign exchange (forex) reserves went from $36 billion at the time of the revolution to $16.5 billion in February 2016. The central bank had imposed a number of restrictions on foreign currency transactions last year in an effort to preserve forex for critical needs like medicines and food.

Foreign currency deposits were limited to $50,000 per month and $10,000 daily. But the restrictive rules resulted in reduced liquidity in the market and impacted the economy’s growth.

Daily News Egypt

In a series of recent moves, the bank has eased the caps to revive the economy. It earlier removed restrictions on forex deposits and withdrawals for individuals and reduced the restrictions on large exporters.

The latest relaxation in rules for companies importing essential items is in line with Egypt’s decision to reduce imports of non-essential items by 25 percent this year so as to preserve its dollar reserves. The Central Bank governor Tarek Amer said he plans to lift all caps imposed in 2015.

A statement released by the Central Bank of Egypt said,

It has been decided to cancel the caps… on corporates that import essential goods, while keeping the caps imposed on corporates that import other goods.

As a countermeasure against customers withdrawing money after the removal of caps, banks have decided to offer higher yields on dollar-denominated certificates of deposit (CDs). The National Bank of Egypt has already raised rates while Banque du Caire and Banque Misr will be doing so shortly.

This is likely to result in a hike in interest rates to prevent the dollar from becoming attractive. The Monetary Policy Committee (MPC) is expected to decide on interest rates on March 17.

Egypt has been urged to devalue its currency but the central bank has refrained from doing so, keeping the Egyptian pound at 7.7301 to the dollar although the black market rate has dropped to 9.8.

Economists have also recommended that it remove its dollar peg, replacing it with a basket of currencies or have a managed floating regime. Amer has stated that he would not consider floating the pound until the country’s reserves reach at least $25billion which he said is likely to be achieved by end of 2016.

Charlie Harrison

More articles by Charlie Harrison