The Central Bank of Libya (CBL) has instructed commercial Libyan banks to increase their liquidity ratio, and the liquid assets calculated in this ratio (mandatory cash reserves) from 20 percent to a minimum 35 percent of their total deposit liabilities.
Analysts say the move can be seen as efforts by the CBL to tighten monetary policy and containing liquidity in the market. Specifically, the CBL is attempting to control the expansion of the monetary supply within the banking system, inflationary pressures and to curb speculation on hard currency or the use of credits in unproductive and corrupt areas.
Raising the reserve ratio simply means banks will be forced to freeze a larger part of their customers’ deposits with the central bank, which limits the circulation of liquidity in the market, but also enhances the central bank’s ability to control the money supply and protect financial stability.
