The Central Bank of Egypt withdrew liquidity worth 160.255 billion pounds from 9 banks on Tuesday through an open-market auction at an interest rate of 19.5%, as part of efforts to manage liquidity levels in the banking system.
Change in the mechanism for accepting bids
The Central Bank of Egypt had issued instructions on the rules governing the main deposit-taking operation under open-market operations, which it had conducted through a weekly fixed-rate auction.
Under the previous mechanism, the central bank announced the targeted size of the operation and then accepted bids submitted by banks according to an allocation method based on each bank’s bid as a proportion of total bids, while applying the main operation rate to the accepted bids.
The central bank decided to change the method for accepting bids for the main deposit-taking operation from allocation to accepting all submitted bids, with the aim of managing excess liquidity and improving the transmission of monetary policy decisions. It also said it would publish the results of each deposit-taking operation on its website.
Liquidity management and the interbank rate
Through liquidity management, the central bank seeks to keep the weighted average overnight return in the interbank market close to the main operation rate, which represents the average corridor rate.
Open-market operations are one of the central bank’s tools for managing liquidity in the banking sector and strengthening the transmission of monetary policy decisions to the money market.
