Cairo: The central bank will start auctioning deposits, but the instruments will not be tradable on secondary markets, traders said on Wednesday.
The central bank said in a statement that it was adding the deposits to existing financial instruments in a move aimed at diversifying instruments used to absorb market liquidity.
The CBE intends to diversify its [financial] instruments used to absorb the excess liquidity in the market – deposit auctions will be added to the existing instruments, the bank said in a statement (CBEZ).
To control inflation in Egypt, the central bank currently holds auctions for certificates of deposit and treasury bills to keep overnight deposit and lending rates within a corridor of 8.75 percent and 10.75 percent.
The deposit auctions were an instrument the central bank had before, and they are launching once again, one Cairo-based trader said.
It s a financial instrument only for the banks to enter, but it is not to be traded on the secondary market, he added.
Traders said they feared the central bank might decrease its auctions for popular certificates of deposit issues, which can be traded on the secondary market.
The banks can trade certificates of deposit [CDs] on the secondary market but we will not be able to do so with deposits, as they are just that – deposits, one trader said.
A central bank official said the bank had no immediate plans to alter its offerings in CDs or treasury bills.
Banks buy certificates of deposit from the central bank and trade them with their clients and other banks, but they will be unable to trade the deposits.
Banks tend to revert to the secondary market for interbank trade in the absence of large central bank auctions for the higher-yielding certificates of deposit.
Some traders said the deposit auctions could be introduced as early as next Tuesday at the start of a new reserve ratio period for calculating bank reserves.
