CAIRO (Reuters) - Egypt’s central bank on Wednesday removed caps on foreign exchange deposits and withdrawals for companies importing essential goods, the latest in a series of steps to boost liquidity in a dollar-starved economy.
Egypt, which relies heavily on imports, has struggled to revive its economy since a 2011 uprising drove away foreign investors and tourists - major sources of hard currency.
Its forex reserves tumbled from $36 billion before the revolt to $16.5 billion in February. To preserve scarce dollars for essential imports such as medicine and basic foods, the central bank imposed a slew of restrictions a year ago on the deposit and withdrawal of foreign currency from banks.
But the rules, which cap forex deposits by companies at $50,000 a month rising to $250,000 for importers of essential goods, have sucked liquidity from the banking system and threaten to strangle growth.
Wednesday’s move comes less than 24 hours after the central bank scrapped restrictions on forex deposits and withdrawals for individuals and weeks after it eased restrictions for large exporters who had struggled to obtain manufacturing components.
The move is in line with Egypt’s plan to preserve dollars by cutting imports of non-essential items by 25 percent this year.
“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,” the central bank said in a statement.
In an apparent effort to stop customers withdrawing all their dollars, Egypt’s main state-owned banks quickly announced they would boost yields on dollar-denominated certificates of deposit (CDs).
National Bank of Egypt raised rates on its three-, five- and seven-year dollar CDs, a banker said. The three-year CD went to 4.25 percent from 3.25 percent and the seven-year CD went to 5.75 percent from 4.25 percent.
Banque du Caire Chairman Mounir El Zahid said he would follow suit. Al Mal newspaper quoted the Banque Misr chairman saying it too would raise rates.
“Clients can now withdraw their money and in order to avoid a run on the bank, banks will be offering a sweetener of higher interest rates,” said one banker who declined to be named.
“This could also mean interest rates will rise big time on the Egyptian pound in order not to make the dollar more attractive. People are expecting around a 1 percent hike next week.”
The Monetary Policy Committee (MPC) is due to make its next decision on overnight lending and deposit rates on March 17.
It kept rates on hold at the last meeting after raising them 50 basis points in December after a U.S. rate hike put additional pressure on the currency.
Economists have for weeks predicted an interest rate hike and the rise in yields on dollar CDs lends impetus for such a move to avoid a new round of dollarisation.
The central bank has so far resisted a devaluation, holding the pound at 7.7301 to the dollar though the black market rate has weakened from 8.8 to the dollar a month ago to 9.8 now.
In comments to the state-owned Al Ahram newspaper, Central Bank Governor Tarek Amer said he aimed to lift all caps imposed in 2015.
“The initial (reactions) to the bank’s decisions started to show in the early hours of its implementation today, as the currency market appeared calm after the (people) realized they can withdraw and deposit at any time,” it quoted him as saying.
Economists have long urged Egypt to devalue its currency, with some advocating it abandon its dollar peg, either for a basket of trading currencies or for a managed floating regime.
Amer has said he would not consider floating the pound until the central bank’s reserves had risen to at least $25 billion.
In comments late on Tuesday, Amer said the central bank hoped to reach that figure by the end of 2016 and that easing the caps would help achieve that goal.
Additional reporting by Eric Knecht, Writing by Lin Noueihed; Editing by Dominic Evans and Gareth Jones