Egypt’s annual inflation rate saw another hike in March to reach 32.7 per cent compared to 31.9 per cent in February on the back of several currency devaluations and a lack of the foreign currency inflows needed to clear an imports backlog.

The rate was revealed amid news about newly introduced certificates of deposit (CDs) aiming at absorbing liquidity, and thus limiting inflation, with LE750 billion worth of one-year CDs expiring in March and April available now.

Last week, four state-owned banks — the National Bank of Egypt (NBE), Banque Misr, Banque du Caire, and the United Bank — issued new CDs after the Central Bank of Egypt (CBE) had announced raising interest rates by an additional two per cent earlier in March.

The public banks offer two kinds of certificates: a fixed, three-year certificate at a 19 per cent interest rate, and a three-year certificate that yields 22 per cent in the first year before falling to 18 per cent in the second year and 16 per cent in the third year.

This week several private banks walked in the footsteps of their state-owned counterparts.

Emirates NBD Egypt introduced three-year CDs with an annual interest rate of 18.5 per cent, a three-month interest rate of 18.25 per cent, or a monthly interest rate of 18 per cent. The minimum amount required to buy the Emirates NBD CD is LE100,000.

The Commercial International Bank (CIB) recently offered elite customers CDs that could be bought for LE3 million with an interest rate of 22 per cent. The CDs were snapped up a few days later.

The CIB issued in their stead three-year certificates with annual yields of 18, 19, and 20 per cent. While the returns on the certificates can be cashed monthly, the 18 per cent CDs can be bought for LE10,000, the 19 per cent CDs for LE200,000, and the 20 per cent CDs for LE1 million.

Mohamed Hassan, Managing Director and CEO Blom Egypt investments, said the private banks had issued the high-yield CDs to encourage clients to continue depositing money instead of resorting to the state-owned banks.

The certificates were introduced with a maturity of three years to relieve the banks of the pressure of having to return money to clients in the short term, he added.

By the end of their first week, the NBE’s new CDs had collected LE118 billion, while Banque Misr’s latest figures report a total of LE60 billion.

Wael Ziadah, CEO of Zilla Capital, said the banks were issuing high-yield CDs to curb dollarisation, reduce trade in the greenback on the black market, and implement the state’s policy to support people in fixed-income brackets who depend on the returns of CDs to increase their income amid surging inflation.

In March 2022, the NBE and Banque Misr issued one-year 18 per cent CDs that were due last month. Together, they collected about LE750 billion.

A large number of those who bought last year’s certificates are expected to invest their money in the newly released CDs. Pensioner Amira Hassan is one such depositor, and she said she would buy one of the new CDs once she cashes in her returns from the 18 per cent certificate she already has as she needs a fixed income and can’t afford to put her money into a risky investment.

Sherine Hassan, who works in a pharmaceutical company, is in two minds. “The highest-yielding certificate of 22 per cent is less than the current inflation rate, which means that I will be losing the real value of my savings if I buy a CD,” she said.

“At the same time, I am not sure buying gold instead can be a good investment due to its current exorbitant price, which may go down in the future.”

Amr Al-Alfi, head of research at Prime Holding, said the new CDs cater most to pensioners seeking a fixed income. “If people want to preserve the value of their money, they can invest in the stock exchange or buy gold, considering that investing in the former will be long-term. They can also invest in listed profit-making companies that regularly distribute profits,” he said.

Blom’s Hassan believes that no matter how high the interest rate on the CDs is, it will not make up for the present rising inflation, saying that this is on the rise due to increasing production costs.

According to a Naeem Brokerage note, the surge in inflation is to be blamed on seasonal and Ramadan-related high demand, the aftermath of currency devaluations, and the effects of a raw materials shortage.

“Raising interest rates will not solve the problem. Interest rates are increasing due to the falling value of the Egyptian pound and the state’s desire to collect liquidity from the market, which is bound to be available again with the maturity of the 18 per cent CDs,” it said.

If depositors do not find a satisfactory saving certificate, they will direct their money into buying dollars, gold, or real estate, which will lead to a hike in their prices, Hassan noted.

With the CBE’s move to raise interest rates by two per cent, returns on treasury bills and bonds have increased. Three-month yield bills recorded a return of 21.5 per cent, while annual yield bills had a return of 23 per cent. Banks that invest in these bills will be able to make up for paying the returns on the new CDs, he said.

Al-Alfi said that investing in the stock exchange, gold, and real estate — in that order — are the guaranteed means to preserve and increase the value of people’s money.

* A version of this article appears in print in the 13 April, 2023 edition of Al-Ahram Weekly