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CAIRO: Interest rates on short-term government debt securities, represented by Local Treasuries, have lost their gains over the last three weeks, with banks and financial institutions reporting an average oversubscription of 1.8 times last week following the monetary policy committee of the Central Bank of Egypt. By fixing the interest on deposit and loan and the rate of credit and discount.
Last week's transactions spurred the ALMAL index, which Al Mal was willing to measure the average yield on its treasury bills, by 0.24 percentage points, from 17,755 to 17.51 %.
The index rose 0.24 point over a three-week rally, before falling almost at the same rate last week, and coverage rates rose 1.8 times on average by compared to 1.24 times the previous week.
In contrast, the Ministry of Finance increased the value of Treasury bonds by 11.4% to 42.06 billion pounds, while 37.75 billion was announced in the course of appeals. offers managed by the Central Bank of Egypt on its behalf.
The interest rate outlook stabilizes until the fourth quarter of this year, with inflationary wave due to the recent rise in energy prices, followed by the resumption of the monetary easing policy by reducing the yield of energy. the central bank between 1% and 1%. As a result, investments at current interest rates are better.
Operators are forecasting inflation for July to establish their outlook for future trends, given recent energy price developments.
The annual rate of general inflation and core inflation fell to 9.4 and 6.4% in June 2019, returning respectively from 14.1% and 7.8% in May to its lowest level. level in over three years. The Central Bank of Egypt attributed this decline to the strong positive effect of the base period, direct and indirect measures to control the public finances of the state in June 2018, as well as the sharp drop in vegetable prices fees in the last month.
The government has announced an increase in electricity prices of 14.95% on average, as of the new fiscal year 2019-2020 beginning July 1, as announced last weekend, fuel prices rose by 16 to 35%.
Various banks and financial institutions seek to increase the return on their investments in debt securities to offset the cost of applying the new treatment in computing the tax owing on investment income in securities of public claim
The Ministry of Finance began calculating the new tax on permits and bonds at the beginning of March, separating the income and investment cost of this activity into a separate container. The department expects a product of about 13 billion pounds of the new calculation method, confirmed the money earlier.
The official newspaper published in mid-May the decision of the Minister of Finance to amend certain provisions of the rules of application of the law on income tax, which included the mechanism for calculating the income tax. Income tax and proceeds bills and treasury bills.
The new tax formula applies to banks and financial institutions by dividing the total deposits, fees, commissions and similar general expenses, excluding provisions and amortization of total revenue, by multiplying the dividend by 80 % of the product of the bond and the product of bonds and treasury bills.
For the rest of the financials of natural and legal persons, the equation is as follows: divide the total financing and overhead costs without any allocation or depreciation of the total income, and by multiplying the product of the division by 80% of the return bonds and proceeds from bonds and treasury bills.
Article 1 also states that it is not allowed to increase the costs of achieving income at 70% during the fiscal year ending after the date of the decision 85% of the next year and 100% of the following years. The subscription will begin on February 21st and old versions will be reopened from this date.
The new procedure requires banks and companies to separately calculate the profits from their investments in treasury bills, which could result in higher real tax rates.
A report from the international rating agency Fitch according to which the adjustment of the calculation method will weaken the profits and head of the bank funds in the coming period, noting that the impact will be slightly up to In 2020 and that banks could transform part of their investments into treasury bills and bonds into private sector financing.
In the same context, local government bond rates continued to decline for the ninth consecutive week as banks were keen to invest in Treasury securities for 5 to 10 years.
On the other hand, the Ministry of Finance has increased the debt by about 290% to reach 8.8 billion pounds instead of 2.25 billion, which falls within the scope of the implementation of a strategy to increase public debt with an 80% reduction in GDP by 2022, Finance Minister Mohamed Mait recently declared in his meeting with Juergen Regentink, first Vice-President of the European Bank for Reconstruction and Development.
In an interview with Bloomberg recently, Maait said the share of bonds in Egypt 's domestic debt had already gone from 5% last year to 30% during the current fiscal year.
The interest rate on bonds has fallen by more than 225 basis points (every 100 points equals 1%) since the beginning of the year, according to data from the Central Bank's website. 39; Egypt.
The finance and fund management department of the government said the demand for investment in government bonds was also due to the high expectations of brokers in reducing interest rates at the same time. fourth quarter of this year.
The average coverage of banks and financial institutions averaged 7.3 times over 5 years and 5.3 times over 10 years last week.
Last week, the debt market saw a decline in the average interest rate over 357 days to 30 percentage points, recording an increase of 17.022% against 17.324 at the last launch, which coincided with a high rate oversubscribed 2.6 times on average compared to the past. The different institutions also requested a LE 25.8 billion subscription. The Ministry of Finance approved claims worth LE 13.4 billion, an increase of 3.6 billion from the target value of the tender.
The average interest rate on 266-day bonds increased by 0.043 percentage points to 17.797% from 17 754 in the last bid, which coincided with a slightly improved hedge rate of 1.45 times against 1, 37 on average before. Of which the Ministry of Finance has accepted 11 billion pounds, an increase of 1.5 billion pounds compared to the target value of the offer.
While the average return on 182-day bills fell by 0.30 percentage points to 17.527 percent in last week's trading, it averaged 17,823 over last week's bid. Before the past, and offers of banks and various institutions to subscribe about 21.4 billion pounds, of which the Ministry of Finance has accepted 9.25 billion, the same value of the target.
The 91-day average yield on bonds declined by 0.18 percentage points to 17.724% last week, compared to 17.908% on the last launch, which coincided with a slight improvement in the hedge rate of 1.07 times. average, compared to 1.01 times previously. With a total value of 9.86 billion Egyptian pounds, the Ministry of Finance approved claims worth 8.4 billion, a decrease of 856.9 million Egyptian pounds compared to the target value of the call for tenders.
In terms of long-term debt, the yield on local treasury bonds declined over the last 5 and 10 years.
The yield on 5-year bonds fell to 15.833% last week, compared to 15.97% for the second-to-last investment, while that of 10-year bonds fell from 15.969% to 15.82%. lowest level since mid-2018.
On the other hand, the Ministry of Finance has increased the debt by about 290% to get about 8.8 billion pounds, instead of 2.25 billion euros.
The ministry raised 5.8 billion pounds of 5-year bonds, announced a 1.25 billion pound bid and increased its 10-year bond sales from 2 billion euros to 2.9 billion pounds .
In the same context, the Ministry of Finance has reduced the target value of debt proposals for this week from about 250 million pounds to 40 billion pounds, of which $ 2.25 billion in bonds and bonds. remain treasury bills.
With regard to liquidity management, the central bank has accelerated the liquidity withdrawal process of banks through fixed and slightly variable deposit mechanisms to obtain about 111 billion pounds, against 106.8 billion last week.
As part of the auction of term deposits, the central bank sold 50 billion pounds sterling for 7 days at a rate of 16.25%, for an amount of about 185.15 billion dollars, and agreed to accept £ 50 billion (27% per bank).
When auctioning Corridor deposits, the central bank auctioned 45 billion pounds for 112 days. Banks have proposed to tie 65.8 billion pounds. The central bank agreed to accept 61.3 billion with an average interest rate of 16.288%.
The central bank uses open market instruments to control the liquidity of the markets, as part of its inflation control tools, on the one hand, and the use of the loonie. Excess liquidity in banks given the low credit rates.
The Central Bank modifies the variable yield deposit mechanism to be linked to the Corridor interest rate, so that banks receive a fixed spread on the central bank's deposit rate of 17, 75%. Therefore, the return of deposits on the open market will be candidate for a rise or fall, Central Deposit Rate.
The bank's linked deposit mechanism aims to reduce the money supply of the pound on the local market and to fight inflation on the other, in order to absorb excess liquidity inflated.
The central bank reactivated the mechanism of short-term variable yield bonds, alongside the liberalization of the exchange rate, in order to reduce the monetary supply of the pound sterling.
The variable yield bond mechanism offers banks space to invest their deposits, especially after the "Finance" agreement with the "central" to reduce the issuance of treasury bills and bonds in the coming period as part of the budget deficit reduction plan.
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