After fixing the central interest… What is the fate of interest rates on certificates in banks?

2023-06-24 14:05:00

05:05 PM, Saturday, June 24, 2023

I wrote – Manal Al-Masry:

Bankers, Masrawy spoke to, expected the continuation of issuing high-yield certificates without change, with the exclusion of reducing or raising the return on them in the near term, provided that the same conditions stabilize, following the central bank’s decision to fix the interest rate for the second time in a row.

The Monetary Policy Committee of the Central Bank decided to fix the interest rate for the second time in a row at its meeting last Thursday, keeping it at 18.25% for deposits and 19.25% for lending.

The central bank’s decisions regarding the interest rate are included in determining the banks’ vision of the structure of their interest rates on savings vessels, the most important of which are savings certificates, which are highly sought following by customers due to the attractiveness of the return offered on them.

Banks offer high interest rates of up to 19% and 20% in most banks on 3-year certificates.

Mohamed Abdel-Aal, a banking expert, told Masrawy that the decision to continue issuing savings certificates with the same return submitted on them following the central bank’s decision to fix the interest rate will be left in the hands of the assets and liabilities committees of each bank, according to its liquidity levels.

Abdel-Al added that the continuation of the same return on certificates as they are is possible and the closest in the near term, although Abdel-Al tends – in a personal capacity – to reduce them to stimulate production and growth, and following correcting the distortion in the liquidity structure and the return of migrant funds once more from the National Bank and Egypt to private banks.

For the first time, during the current year, private banks began competing with the high-yield certificates offered in Al-Ahly and Egypt Banks by offering high-yield prices to attract the savings of their customers locked in the previous certificate of 18% in the two government banks, with its maturity starting from March 22 until the end of last May.

The Central Bank, upon its approval of the Al-Ahly and Egypt Banks, to offer two high-return certificates last April, took into account that the return on them approximates the prices offered in competing banks to avoid affecting customers and withdrawing their savings from these banks in favor of the two banks under the lure of the high return.

Al-Ahly Bank and Egypt Bank, the two largest government banks, offered two certificates for a period of 3 years, the first with a fixed interest rate of 19%, the return on which is paid monthly, and the second with a graduated return that is paid monthly, ranging between 22% in the first year, 18% in the second, and 16% in the third.

Muhammad Badra, a banking expert, predicted that savings certificates available in banks will continue to be offered with the same return as they are without change, in light of the competition of interest rates offered on treasury bills, which approach 19% following tax deduction.

He explained that the banks will remain in a state of monitoring their liquidity rates and the extent of customer demand before taking any decision to reduce or raise the interest on the certificates.

Why raise interest on certificates is not proposed?

Muhammad Badra said that the decline in gold prices and the decline in the price of the dollar in the parallel market for currency trade (the black market) in recent days enhances the attractiveness of returning to invest in certificates offered in banks once once more for fear of losses from the decline of the yellow metal as well as dollarization, which does not require him to Increase interest on current certificates.

Observers, who spoke to Masrawy last week, said that the price of the dollar on the black market had fallen below the level of 40 pounds, following a slight return in currency concessions at ATMs and President Abdel-Fattah El-Sisi’s talk regarding excluding a fourth devaluation of the pound in the current period.

Badra explained that the continued decline in the price of gold and the dollar in the parallel market supports the trend towards the continuation of the same returns provided on certificates in banks without a raise, provided that there are no surprises and the return of the pound’s price decline once morest the dollar.

Mohamed Abdel-Aal ruled out raising the return on current certificates in banks or offering others at a higher interest rate due to their economic futility and negative consequences on the production wheel, as well as their inability to curb inflation (controlling the price increase), which is more linked to the exchange rate.

The central bank uses the interest rate as a weapon to curb inflation, which rose to record levels in recent years during the month of May, in normal economic conditions and not linked to unusual movements of the currency exchange rate once morest the dollar, such as the current situation, according to Abdel-Al.

The Central Bank had raised the interest rate by a total of 10%, starting from March 2022 until last March, with the aim of controlling inflationary pressures resulting from the decline in the exchange rate of the pound once morest the dollar.

The price of the dollar rose once morest the pound during the 15 months, by regarding 96%, to rise from 15.76 pounds on March 20, 2022, to 30.94 pounds at the end of bank transactions last Thursday.

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