Do you remember when the famous word on the lips of people on the street was, “There is no liquidity”? Do you remember when many people were trying to spread rumors that the banks had no money and that people’s savings in the banks would be lost? .. The Central Bank responded to all the people who were talking and then shut up all the tongues and announced that local liquidity increased by 2.4 trillion pounds in just one year.. But I wonder what the meaning of the word liquidity actually is? Why does increasing or decreasing it make a difference for us?
The first thing when we say “local liquidity” is that we are talking about all the money that is available in the Egyptian market…and this includes the cash that people have and also what is inside the banks, whether deposits or accounts. In short, it is the indicator that tells you that the Egyptian economy is “how is it going?”
What is the importance of this liquidity?
Liquidity is simply the blood that runs through the veins of the economy. When liquidity increases, companies are able to pay off their debts. People find money to buy their needs and new projects move, even if liquidity decreases? The world remains standing, markets weaken, and the buying and selling movement is affected
Let us look at the numbers for 2024. In January, liquidity was about 8.983 trillion pounds. Month after month, the rates increased by 9.124 trillion in February, and 10.975 trillion in April. By the end of October, this number had broken the barrier of 11.247 trillion pounds. This means an increase of 2.4 trillion. One pound in just 10 months
So, what makes liquidity increase in this way?
There are many factors, the most important of which is the increase in deposits in banks. People and companies put their money in accounts and deposits. For example, demand deposits reached 1.614 trillion pounds at the end of September. Quasi-money, such as investment certificates and time deposits, recorded about 8.469 trillion pounds. And also the cash in circulation outside banks, which according to official estimates reached 1.163 trillion pounds at the end of September, meaning there is still a portion. A large amount of cash moves in the market
What does this mean?
It has many meanings, of course, the first of which is increased liquidity, which means that there is economic movement, whether from the government or from the private sector.. But a significant increase in liquidity can put pressure on prices and increase inflation if it is not accompanied by greater production and more goods in the market, and this justifies the Central Bank’s desire to withdraw liquidity every now and then. From banks
But the most important thing is whether this liquidity is used in real investments or is it transformed into price increases? This is the question that we must all remain focused on.
In the end, local liquidity, like any major economic indicator, may be an indicator of healthy economic growth or an indicator of problems that we must pay attention to, and numbers alone are not enough. We must understand what is behind them.
