I wonder what makes the Central Bank withdraw historical liquidity worth 1 trillion and 370 billion pounds today from 25 banks, at an interest rate of 27.75%?! What does this decision mean? Why does the Central Bank take this money and spend it where? What effect has this had on your life? And on the economy? .. Follow the report until the end and you will know all the details
Within hours, the Central Bank decided to withdraw a very large amount of liquidity from banks operating in the market, at a high interest rate of 27.75%.
Why does the bank do this? Is this issue just numbers? Does it have huge impacts on inflation, commodity prices, the pound, and even investor decisions?
Simply put, the central bank’s primary role is to maintain the stability of the economy. This means that it looks at inflation rates, which is, in short, the rise in prices, and controls them so that prices do not rise without supervision. One of these methods is that it raises interest rates in order to reduce the liquidity in the market.
What does it mean to reduce liquidity?
I mean, when the central bank decides to raise the interest, people go to the banks to put their money down and benefit from the high interest. This reduces the money available for purchase, and therefore prices may decrease with the lack of demand, but this decision also creates a crisis because the banks will find themselves full of money without any loan movement due to the high interest on them. Borrowing
“Here is the problem that is happening! Banks still want to issue loans to people in order to make a profit, but with the high interest, no one wants to take a loan.. And here the banks go to the central bank and complain, telling it: ‘We are not able to pay this interest, and we will be harmed.’ The Central Bank responds to them and decides to take from them the liquidity that they do not know how to use, and they have interest on it at 27.75%. It is as if it is telling them: ‘Don’t worry, I am taking it from you and will give you interest on it.’”
Why does the Central Bank take this money?
Most likely, he will not do anything major with it. He will park it for a short period just to make sure that the money is not available in the market in an exaggerated amount. This may help somewhat in stabilizing prices and preventing an increase in inflation.
Why is this topic important?
Because when the central bank withdraws liquidity, this shows the extent of inflation that the country is experiencing and sends a message that there is economic control that helps stabilize the market. Also, investors take the steps of the central bank seriously and this enhances their confidence in the economy. Therefore, withdrawing liquidity is important not only because of inflation. But also to preserve the value of the pound in the currency market, because when the amount of the pound decreases in the market, it maintains its value against foreign currencies, and this helps prevent the decline of the currency, which could make us find prices increasing abnormally.
Withdrawing liquidity also confirms that banks will not have problems due to the accumulation of useless money. This is an essential part of maintaining the stability of the banking system. Therefore, withdrawing liquidity is a strong step by the Central Bank to protect the economy and ensure that inflation does not get out of control and maintain the stability of the pound. At the same time, it supports banks so that they do not drown in liquidity that they cannot benefit from
These decisions do not only affect the banks, but they affect all of us: the citizen, the investor, and even the state itself. A move like this indicates that the central bank is willing to bear large costs in order for the economy to remain stable and balanced, and this is an important indicator for investors who want to put their money in a stable economic environment.
This was a simplified explanation of a historic step by the Central Bank of Egypt. Withdrawing liquidity worth one trillion and 370 billion pounds, at an interest rate of 27.75%…a step that proves that there is still control and oversight over our economy..
Always follow and understand every decision because it makes a difference in your life more than you can imagine
