No sig­nif­i­cant de­cline ex­pected in T-bond de­mand af­ter in­ter­est rate cuts: EFG Her­mes

The Daily News Egypt - - Front Page -

EFG Her­mes has ruled out any sig­nif­i­cant de­cline in for­eign in­vestors’ ap­petite for Egyp­tian trea­sury bonds (T-bonds) if the Cen­tral Bank of Egypt (CBE) con­tin­ues its pol­icy of cut­ting in­ter­est rates.

EFG Her­mes Man­ag­ing Di­rec­tor and Head of Re­search Ahmed Shams El Din an­nounced that to­tal sales of Egyp­tian trea­sury bills (T-bills) to for­eign­ers are ex­pected to reach about $19bn, sim­i­lar to 2017, ac­cord­ing to the state-run Mid­dle East News Agency.

The gov­ern­ment’s for­eign ex­change needs that would be pro­vided through trea­sury bills may range from $15bn to $20bn in 2018, much of which will be used to pay pre­vi­ous ben­e­fits, Shams El Din ex­plained, adding that T-bill sales to for­eign­ers would be suf­fi­cient to cover those for­eign ex­change needs. How­ever, Shams El Din clar­i­fied that the ex­ces­sive reliance on the del­uge of for­eign in­flows into Egypt’s high-yield­ing debt is un­de­sir­able and car­ries se­ri­ous risks.

“If in­ter­est rates de­clined to 13-14%, yields will con­se­quently be low­ered on Egyp­tian trea­sury bills to lev­els close to those rates. How­ever, this would not af­fect the at­trac­tive­ness of Egyp­tian trea­sury bills to for­eign­ers, as they are low-risk in­vest­ments,” he ex­plained.

He pointed out that the av­er­age yield dropped to 170 ba­sis points from about 320 af­ter the lib­er­al­i­sa­tion of the ex­change rate, point­ing out that when com­par­ing the re­turn on Egyp­tian debt in­stru­ments—even af­ter the in­ter­est rate cuts—it re­mains one of the high­est re­turns in emerg­ing mar­kets.

If debt in­stru­ments (bonds and trea­sury bills) are higher in some coun­tries such as Ar­gentina, Nigeri,a or else­where, this does not mean that for­eign in­vestors and global in­vest­ment funds will put all their money in these coun­tries, but they will dis­trib­ute it based on risk, Shams El Din added.

The CBE cut rates at its last meet­ing on 16 Fe­bru­ary by 1%,while fur­ther de­ci­sions by its Mon­e­tary Pol­icy Com­mit­tee (MPC) on in­ter­est rates are an­tic­i­pated dur­ing its next meet­ing on Thurs­day.

The MPC de­cided to lower the overnight de­posit rate,the overnight lend­ing rate, and the rate of the CBE’s main oper­a­tion by 100 ba­sis points to 17.75%, 18.75%, and 18.25% re­spec­tively. The dis­count rate was also re­duced by 100 ba­sis points to 18.25%.

To­tal sales of Egyp­tian T-bills to for­eign­ers are ex­pected to reach about $19bn

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