Egypt’s central bank moved 5 billion Egyptian pounds (US$854 million) of cash into the financial system as depositors gain access to their savings for the first time in more than a week and the government seeks to resume debt sales.
The central bank used military cargo planes to bring in the cash, Central Bank of Egypt Governor Farouk El-Okdah told state-run TV. The bank, which has US$36 billion in reserves and guarantees deposits, said last week that customers could withdraw up to 50,000 Egyptian pounds and US$10,000 a day and lenders had enough liquidity to meet all demands.
“The central bank took a good step in saying something publicly to try to reassure depositors,” Ann Wyman, London-based head of emerging markets research at Nomura Holding Inc, said in an e-mail on Thursday.
Yields on Egypt’s Treasury bills may surge about 30 percent as the government seeks to raise 11 billion Egyptian pounds tomorrow after canceling last week’s auction as protests against Egyptian President Hosni Mubarak intensified, according to Shahinaz Foda, the head of treasury at BNP Paribas Egypt. Credit Agricole CIB expects the pound to slump 20 percent in the short term.
The currency’s three-month non-deliverable forwards rose to a record last week, suggesting the currency may fall more than 7 -percent against the US dollar.
The finance ministry plans to hold a meeting with the central bank and primary dealers and was to issue a statement later yesterday, Hani Khallaf, the finance minister’s public debt adviser, said in a telephone interview last week. Egypt’s stock exchange will likely open this week with new rules to limit the expected drop in the market, communications manager Hisham Turk said on Saturday. The bourse has been shut during the past five working days.
However, a stock exchange official announced yesterday that it would remain closed today and tomorrow.
Egypt’s central bank will hold an auction for Treasury bills today and announce the results tomorrow, Central Bank of Egypt Deputy Governor Hisham Ramez said on Saturday. More than 200 bank branches were to open yesterday, the central bank said on its Web site.
The unrest sent the yield on the country’s 5.75 percent bond due in April 2020 to a record 7.2 percent on Jan. 31. The yield has dropped 62 basis points since and ended the week at 6.59 percent. The cost of insuring Egypt’s debt for five years with credit-default swaps soared to 430 basis points on Jan. 28, the highest since April 2009. They closed at 380 on Feb. 4, CMA prices in London show.
Radwan said Egypt would honor its debt obligations and urged foreign investors to have confidence in the country.
“All the bond obligations, everything will be honored on time,” Radwan said in a telephone interview from Cairo on Friday. “We are not defaulting on any obligations.”
Banks held 937 billion Egyptian pounds in deposits in November, according to preliminary data published on the central bank’s Web site. Of that, households held 505 billion pounds, while private companies held 124 billion, the data show. The country’s banks have an average loan-to-deposit ratio of about 53 percent, Mohamed Barakat, head of the banking association, said in an interview on Jan. 30.
Some Egyptians, such as 32-year-old pharmacist Moustafa Awwad, said they won’t rush to take their money out.
“I have enough cash and the central bank guarantees all deposits,” he said in a telephone interview from Cairo. “Having money at the bank is safer than holding cash.”
Egypt’s three-month non--deliverable pound forwards strengthened 0.2 percent to 6.325 per US dollar on Friday from 6.34 the previous day. The contracts reflect bets the currency will weaken 7.4 percent in three months from the spot rate of 5.8570.
A drop in the Egyptian pound may prompt the central bank to intervene, John Sfakianakis, chief economist at Banque Saudi Fransi Credit Agricole Group, said in a note on Thursday.
“Over the short term, we expect the Egyptian pound to fall by 20 percent, which would require the central bank to intervene on several occasions,” he wrote. “The drawdown in reserves would be a crucial factor in supporting the Egyptian pound, but increased political tensions, a run on local banks as well as expected dollarization of some of the deposits will impact the short-term currency outlook.”
ADDITIONAL REPORTING BY REUTERS
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