Following the Central Bank of Egypt’s (CBE) decision to cut interest rates by 1%, the yields on Egypt’s treasury bills launched by the Ministry of Finance saw a decline on Sunday ranging between 0.34 and 0.83%.
On Sunday, the CBE, on behalf of the Ministry of Finance, issued treasury bills for maturity of 91 days for EGP 8.5bn.
The interest rates, accepted by the Ministry of Finance, on the T-Bills has declined to 17.248% for the lowest price, 17.528% for the highest price, and 17.453% on average, compared to 17.9%, 18.36%, and 18.202% in the last T-Bills offer launched on 10 February, a decline ranging between 0.625% and 0.832%.
Also on Sunday, the CBE issued other treasury bills for maturity of 273 days for EGP 8.5bn.
The interest rates, accepted by the ministry, in this offer declined to 17.5% for the lowest price, 17.8% for the highest price, and 17.686% on average, compared to 17.849%, 18.45%, and 18.296% in the last T-Bills offer on 3 February, a decline ranging between 0.349% and 0.65%.
Every 1% cut in interest rates saves EGP 30bn from the Ministry of Finance’s allocations for the public debt bill, which would contribute in containing the budget deficit, according to Tarek Metwally, former deputy managing director and member of the board of directors of BLOM Bank Egypt.
He noted that keeping the inflation rates under control is the most important mission of the government in the upcoming period.
Metwally called on the government to keep on the facilitative policy the CBE has started to encourage the economic growth and increase banking loans.
“I believe that the interest rate cuts will not affect the inflow of foreign investment in debt instruments,” Metwally said, noting that the current interest rate is higher than the normal world rates, which would put Egypt as one of the most attractive destinations in the world for foreign investments in the debt instruments.
He pointed out that the recent interest rate cuts were expected amid the decline of inflation and the CBE’s plans to bring inflation rate to less than 10% in the upcoming period.
The government has revealed its intention to lower the internal and external public debt interest to EGP 502bn, representing 33% of total expenditure in the fiscal year (FY) 2019/20, compared to 37.8%, equivalent to EGP 541bn, of total expenditure in the current fiscal year. The government aims to achieve this level through cutting interest rates, decreasing budget deficit and public debt.
Banque Misr lowered the interest rates of the variable-yield saving instruments which are linked to the CBE’s interest rate by 1% to become 16% instead of 17% before the cut.
Banque Misr also lowered interest rates by 1% on its VIP current accounts, as the higher interest rate will reach 10%.
The Assets and Liabilities Committee (ALCO) of Banque Misr was set to convene on Sunday to discuss the fate of the interest rates of other saving instruments. It is expected that the bank will cut the interest rates of short-term deposits and saving accounts by 1%.
Most of the liquidity of Banque Misr are in individual-owned saving certificates, while companies dominate the larger share of deposits.
The interest rate on 30 types of saving certificates for three and five years issued by about 24 banks decreased on Sunday in response to the CBE’s interest rate cut.
Meanwhile, the analysts believe that the loans of companies related to the basic interest rate at the CBE are the main beneficiaries of the interest rate cut. However, they believe that the required increase in credit needs a decline in interest rates of no less than 3%, especially that the past three years have seen successive increases in CBE interest rates.