This question about certificates of deposit (CDs) arises amidst the influx of billions of USDs from the Ras El Hekma deal. The deal’s anticipated effects include alleviating congestion in Egyptian ports, potentially reducing prices, and curbing inflation. Asharq Business polled experts on the matter, and here’s a round-up of the key takeaways…
Curbing Inflation:
Despite these potential benefits, CDs may still be necessary due to Egypt’s substantial liquidity infusion in USDs. This influx could expedite currency devaluation, which could in turn boost inflation, emphasizing the CDs’ continued importance as a tool to curb it.
EGP Strengthening:
Analysts believe the CDs could encourage investment in the EGP as a safe haven, especially with the recent decline in the USD’s price in the parallel market after the Ras El Hekma deal.
The Case for Discontinuing CDs:
Analysts speculate that if there are significant movements or fluctuations in currency exchange rates, particularly a potential decline in the USD’s price due to the Ras El Hekma deal, it could prompt a reconsideration of CDs. In such a scenario, investors might perceive the EGP as a more attractive investment option, potentially leading to an increased demand for it. Consequently, the rationale for continuing CDs, aimed at absorbing liquidity and regulating the market, could diminish, potentially resulting in their discontinuation.
Potential Introduction of 35% CDs:
Economist Hany Genena expects banks to introduce new CDs with preferential interest rates, potentially reaching 35%, in exchange for surrendering USD in some banks, as the CBE nears a return to exchange rate flexibility or convenes an extraordinary meeting to raise interest rates soon.
How?
He clarified that banks can absorb the cost of the new certificates with record yields after increasing interest rates on treasury bills and bonds – government debt instruments – which are one of the available sources for banks to invest their liquidity.
