New opportunities for savings

Safeya Mounir , Wednesday 8 Mar 2023

Experts say that the Central Bank of Egypt is likely to introduce a new high-yield savings certificate soon.

New  opportunities for savings
New opportunities for savings


The annual certificates of deposit (CDs) with an interest rate of 18 per cent that were issued by the National Bank of Egypt and Banque Misr, the country’s largest state-owned banks, will mature on 21 March. The proceeds of selling the certificates, offering the highest-ever yield until last year, amounted to LE750 billion.

The CDs were introduced in an attempt to put the brakes on the possible dollarisation of the economy as the Egyptian pound was losing ground against the greenback. The Central Bank of Egypt (CBE) devalued the pound by 14 per cent in March 2022 after foreign investors pulled out of the local treasury market following the outbreak of the war in Ukraine.

Pensioner Amira Mohamed subscribed to the 18 per cent CDs and also bought some of the 25 per cent CDs that were more recently issued. She said that if the CBE offers another higher-yielding CD she will be the first in line to buy it.

With the maturity of the 18 per cent CDs now coming due, some observers expect the CBE to introduce another high-yielding CD soon, though at an unknown interest rate.

Wael Ziyada, the founder and chairman of Zilla Capital Investment, said the CBE’s next step would depend on government goals in the next phase.

He said that most of the proceeds of the 18 per cent CDs had not been from fresh money pouring into the banking sector but had come from people breaking into other deposits or liquidating lower-yielding certificates.

The majority of those who had bought the CDs were individuals, not companies, he said. These individuals would probably now reinvest their money in the highest-yielding CDs available in the market, if they did not spend it first on daily necessities.

The CBE will issue a high-yielding CD if the government wants to absorb further liquidity from the market, he said.

The current interest rate corridor stands at 17 per cent, Ziyada said, adding that if the CBE issues another 18 per cent CD the banks will not shoulder a significant additional cost.

The National Bank of Egypt and Banque Misr issued their highest-ever yielding CD on 4 January at an annual interest rate of 25 per cent. This was reduced to 22.5 per cent if investors opted to cash in the interest on a monthly basis.

Proceeds from the CDs raised LE290 billion, and the sale was halted on 31 January. Investment bank analysts expect inflation to rise this month on the back of a rise in the price of unsubsidised bread, a staple for many people.

Egypt’s annual urban consumer price inflation jumped to 25.8 per cent in January, the highest in more than five years and up from 21.3 per cent in December. The higher inflation rate was driven by rising food prices, which make up around 32 per cent of the basket of goods according to which inflation rates are calculated.

The next best thing on the market in terms of high-yield certificates are the National Bank of Egypt’s three-year platinum saving certificates, which offer a 17.25 per cent annual interest rate, 16.5 per cent biannual interest rate, 16.25 per cent quarterly interest rate, or 16 per cent monthly interest rate.

Financial expert Hani Tawfik says the CBE will soon offer high-yielding CDs to curb inflation and absorb liquidity from the market.

Mohamed Abu Basha, a senior economic analyst and vice president of research at local investment bank EFG-Hermes, concurred, adding that the recent increase in the price of fuel would take inflation to new highs.

It is not possible to predict when inflation rates would decrease, he said, especially because the dollar exchange rate has not fully stabilised.

* A version of this article appears in print in the 9 March, 2023 edition of Al-Ahram Weekly

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