Local and international banks and institutions offered to invest $1.1679 in the treasury bills auction for dollars put up by the Central Bank of Egypt (CBE) on Monday.
The CBE accepted $897.9m of the liquidity offered with an interest rate of 3.22-3.25% and an average of 3.248%. The CBE auctioned $800m to mature in a year on 10 January 2017.
According to the CBE, the auction outcome will be used to pay the value of a similar auction put up on 13 January 2015 with a value of $971.3m.
The interest rate on this auction increased by approximately 40 points compared to the rate of CBE’s last similar auction in December 2015, which ranged between 2.80% and 2.84%.
The interest rate on the dollar bills is decided in accordance with a number of factors, most prominently the volume of the dollar liquidity in the market, the alternative investment opportunities enabled for the local and foreign financial institutions that invest in these bills, and the country’s credit rating.
The CBE started to offer the treasury bills on 30 November 2011, where the average interest rate on these bills in the first auction amounted to 3.87%. The CBE allows local banks and foreign institutions to subscribe for the dollar bills with a minimum of $100,000 and its multiples.
Banks operating in the local market heavily rely on these bills to invest their dollar liquidity since it is a scheme guaranteed by the government with a good interest rate. Further, the marker lacks other tools to invest this liquidity except for a small number of syndicated loans that are proposed irregularly, or investment in the international capital market, which is risky and has low returns.