In a significant development, Egypt’s two major state banks, Banque Misr and the National Bank of Egypt, have recently increased the yield on their one-year local currency certificates of deposit (CDs). The announcement, made through Banque Misr’s Facebook page, has raised concerns among bankers, hinting at a potential currency devaluation and an impending adjustment in the central bank’s main interest rate.
Background:
The yield hike coincides with the maturation of hundreds of billions of Egyptian pounds worth of CDs that were issued by the banks approximately a year ago. This move has prompted analysts to speculate on the possibility of a broader economic shift, signaling changes in the official exchange rate policy.
Implications of Yield Hike:
Financial experts believe that the increase in CD yields is a harbinger of further financial adjustments. Allen Sandeep of Naeem Brokerage suggests that this move is widely anticipated and could be followed by a subsequent hike in overnight central bank interest rates. Moreover, it might indicate a shift in the official exchange rate policy in the near future.
Maturity of High-Interest CDs:
The timing of the new CDs is particularly noteworthy as it coincides with the maturity of over 500 billion Egyptian pounds (approximately $16.3 billion) worth of CDs issued last year. These CDs carried an impressive 25% interest rate. The maturation of such a substantial amount further fuels speculations regarding the potential economic measures that may be in the pipeline.
Currency Stability Concerns:
Egypt has maintained its official exchange rate at about 30.85 Egyptian pounds to the dollar since March. However, the black market has witnessed a contrasting trend, with the Egyptian pound depreciating to as low as 52 pounds to the dollar in recent weeks. This divergence between official and black market rates raises concerns about the stability of the currency.
The decision by Banque Misr and the National Bank of Egypt to raise the yield on one-year CDs has triggered speculation about broader economic changes in Egypt. As the matured high-interest CDs put pressure on the banking system, the possibility of a currency devaluation and an adjustment in interest rates becomes more apparent. Observers will be closely monitoring developments in the coming weeks to gauge the extent and impact of these potential economic shifts on Egypt’s financial landscape.
