CAIRO – Demand for the Egyptian central bank's repurchasing agreement (repo) facility has fallen back after shooting up in June, indicating that short-term pressure on the banking system may be easing as more money flows into the country. The government introduced the facility in March last year to boost liquidity in Egypt's turbulent financial markets in the wake of a popular uprising. The flight of foreign investors after the uprising forced the government to fund its burgeoning deficit - now running at about 8 percent of gross domestic product - b y relying mainly on local banks, whose lending capacity was rapidly stretched to its limit. In June, repos outstanding surged to almost 38 billion Egyptian pounds ($6.23 billion), equivalent to more than a quarter of the government's annual budget deficit. They have since fallen back to about 12 billion pounds. The repo facility pumped more money into the banking system. But it also increased the government's already high cost of financing its deficit by allowing banks to temporarily sell treasury bills that yield 12.75 percent or more to the central bank at only 9.75 percent interest. Over the last few months, liquidity problems have eased, particularly after the government received loans and pledges from Gulf states of more than $5 billion. Tourism has also improved and oil prices have fallen. This appears to have taken some of the pressure off banks, although deposit figures for the period are not yet available, analysts and traders say. – Reuters
