Local banks lower investment in T-bills during H1 2018

CAIRO – 19 August 2018: Local banks lowered their investments in treasury bills (T-bills) during the first half of 2018, recording about LE 665 billion, compared to LE 680.4 billion by the end of December, with a decrease of LE 15 billion.

In January, total investments of the banking sector in T-bills declined to LE 645 billion, reached LE 619 billion in February, and rebounded to LE 650 billion in March.

Banks investments fell again in April to LE 642 billion, and then hiked in May and June to LE 662 billion and LE 665 billion, respectively.

After floating the Egyptian currency, treasury yields reached unprecedented levels as the Central Bank of Egypt raised interest rates by 7 percent in installments to record 18.75 percent for deposits and 19.75 percent for lending before cutting the interest rates twice earlier this year.

The CBE cut interest rates twice earlier this year, in February and March by 200 basis points, and kept the rates unchanged during May and June meetings at 16.75 percent and 17.75 percent for the overnight deposit rate and the overnight lending rate, respectively.

The yields on short-term debt instruments (local treasury bills) continued to fall for the fourth week in a row in the first week of August, influenced by the recent policy of the Ministry of Finance, focusing mainly on medium and long-term bonds and maintaining interest rates at their levels during August meeting.

The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) kept interest rates unchanged Thursday, August 19, for the third time this year, setting the overnight deposit rate and the overnight lending rate at 16.75 percent and 17.75 percent, respectively.

T-bills are issued every Sunday and Thursday.

For the current fiscal year, the budget deficit is estimated to record LE 438.59 billion, or 8.4 percent, planned by the ministry to be financed through treasury bills and bonds and through international and Arab loans.

Foreign investments in the Egyptian government debt instruments recorded $23.1 billion by the end of March 2018, up from about $20 billion in December.

Egypt needs to fund 2018/2019 budget by LE 714.64 billion; LE 511.21 billion will be provided by domestic debt instrument and the rest will come from foreign financing through the issuance of bonds and the IMF loan.

In November 2016, the Executive Board of the IMF approved a $12 billion loan as a financial assistance to Egypt to support the Egyptian economic reform program.

Upon the board's approval in November, Egypt floated its currency, losing around 50 percent of its value, as part of the economic reform program which imposed taxes, including the value-added tax (VAT), and cut energy subsidies, all with the aim of trimming the budget deficit.