Banks operating in the Egyptian market have ignored the decision the Central Bank of Egypt (CBE) made on 16 June to raise its basic interest rates by 1%. Banks neither responded to that decision, nor did they raise interest rates on their pound saving schemes.
The CBE’s Monetary Policy Committee decided to raise the basic interest rates at CBE by 1%, making the overnight deposit rate 11.75%, the overnight lending rate 12.75%, and both the CBE’s main operation and discount rate 12.25%.
The CBE’s basic interest rates are the most important indicators of the direction interest rates on the Egyptian pound in the Egyptian market will take. Usually, any change in these rates, whether an increase or decrease, is followed by similar changes among banks.
Although the decision was made over a week ago, the market has seen only limited adjustments by the National Bank of Egypt (NBE), Banque Misr, Banque Du Caire, and Industrial Development and Workers Bank of Egypt (IDBE). The four banks have raised their interest rates on deposits and saving accounts, but have not changed the rate on savings certificates.
The lack of compliance comes in spite of the raise in the return on treasury bonds and bills issued by the Ministry of Finance last week, which was approximately 1%. The ministry made these adjustments after the CBE’s decision to hike interest rates.
NBE has raised the interest rates by 1% on savings and 0.75% on deposits, while Banque Misr has raised the interest rates on customers’ deposits by 1% and the return on savings accounts by 0.75%.
Banque Du Caire has raised the interest rates on deposits by 0.5% and on savings accounts by 0.4%, while IDBE has raised the interest rate on both the deposits and savings accounts by 1%.
The General Manager of Treasury at IDBE, Haitham Abdel Fattah, said savings certificates come with a relatively long maturity period and are expensive for banks. As a result, the return on treasury bonds may not cover that cost.
Osama El-Menilawy, the assistant general manager of the financial sector at a private bank operating in Egypt, said that the majority of banks provide good interest rates on their deposits and do not need to raise the interest rates for deposits.
He added that with regards to the interest rates on savings certificates, last week’s increase in the return of treasury bonds and bills is not enough to push banks to change the interest rates on their long-term savings certificates, particularly considering this increase may be temporary and the interest rates could be reduced at any time.
According to Tamer Youssef, the head of treasury at a foreign bank operating in the Egyptian market, the increase in the return of treasury bonds and bills may not last more than three months in order to avoid negatively affecting local public debt.
Youssef expects the return on debt instruments to decline again by the end of August, or the beginning of September.