Egypt state banks launch products to support national currency

Egypt’s two largest state-run banks have launched savings certificates for Egyptian pounds with an interest rate of 12.5 percent to support the currency, local media and bankers announced Sunday, increasing the likelihood of a central bank hike next month.

A Cairo-based banker said the increase is significant as the average interest rate at Egyptian banks hovers around 10 percent currently.

“They did this to support the pound and take pressure off foreign currencies. The central bank will have to hike rates in its next meeting, otherwise these banks will be under pressure with very low margins,” one banker told Reuters.

Egypt is facing a currency crisis due to what many economists say is an overvalued pound. It had allowed the pound to weaken to 7.9301 pounds against the dollar in October but the rate is still far from Saturday’s black market rate of 8.51 pounds to the dollar.

The central bank kept its overnight deposit rate at 8.75 and its overnight lending rate at 9.75 for the sixth consecutive meeting on October 29. It is due to meet again on December 17 under the leadership of a new central bank governor, Tarek Amer.

“The bank’s launch for the saving certificate with a 12.5 percent interest rate is a preemptive step for the market’s movement toward raising the interests on the saving products in the coming period,” an official at the treasury of Banque Misr told a local newspaper.

The official said that he expects other banks to follow suit and raise their interest rates on their main products or launch new savings products soon.

Egypt’s foreign currency reserves, which stood at about $36 billion before the 2011 uprising, were down to $16.4 billion at the end of October despite billions of dollars in Gulf Arab aid since mid-2013.

Source: Reuters