CBE to keep auctions on Variable Rate Deposit: Beltone

CAIRO – 1 April 2018: Investment Bank Beltone Financial expects that the Central Bank of Egypt (CBE) will keep its Egyptian Pound Variable Rate Deposit Auctions, albeit to a lesser volume and frequency in the second half of fiscal year 2017/18, Beltone said in a report Sunday.

It then expects these auctions to pick up again in the first half of fiscal year 2018/19.
The CBE has started auctions on the Variable Rate Deposits following the flotation of the Egyptian pound in November 2016 as a tool aimed at withdrawing liquidity from the market to curb inflation.

The last auction was held in February, with a value of LE 205 billion with a 28-day term. The CBE has offered a total of 74 auctions since the float. The bank started off with offering two auctions a week, but it then reduced them to only one.

In its last meeting on Thursday, the CBE’s Monterey Policy Committee cut interest rates by 100 basis points for the second time in 2018.

The overnight deposit rate was lowered to 16.75 percent from 17.75 percent, and the overnight lending rate was cut to 17.75 percent from 18.75 percent.

The cut came on the back of cooling inflation, which reached 14.4 percent in February 2018, its lowest level since the float.

Beltone penciled in a 400 basis points cut in interest rates during fiscal year 2017/18, keeping it unchanged throughout the first half of 2018/19 in light of the expected subsidy cuts in the third quarter of 2018.

The expected cut will result in a hike in fuel prices by 35-45 percent, which will add 3-5 percent to inflation rates, Beltone said.

The investment bank further said that Egypt still offers lucrative investment opportunities in the fixed-income instruments, especially after the drop in the value of the local currency.

The CBE has hiked interest rates by a total of seven percent following the flotation in late 2016, with the aim curbing inflation.

Driven by flotation and cutting fuel subsidies, inflation spiked to a peak level of 33 percent in July 2017, however it started declining gradually afterwards.