Egypt central bank to offer first-ever euro-denominated T-bills

Central bank holds first euro-denominated treasury bill auction at time when local currency interest rates are high

Egypt's central bank has told commercial banks it will offer 400 million euros in one-year euro-denominated treasury bills at an auction on 28 August, a banker said on Thursday.
It will be the first time the central bank has sold euro-denominated T-bills. In November it introduced T-bills denominated in US dollars, and has sold $5.83 billion of the bills in six auctions so far.
The government has turned mainly to the local money market to finance its budget deficit since Egypt's popular uprising in early 2011 chased away most foreign investors, and the ability of local banks to lend the government Egyptian pounds has been stretched to its limit.
“It is good step by the government to fulfil Egypt's trade deficit with foreign currency rather than domestic currency with high yields,” said Hany Genena, head of research at Pharaohs Securities Brokerage.
Genena explained that when the government borrows in foreign currency-denominated T-bills, it will repay at a lower interest rate than what it pays when offering Egyptian pounds auctions.
Yields on domestic Egyptian pound T-bills have surged since the uprising which unseated Hosni Mubarak. The average yield on 182-day T-bills rose to more than 15.5 per cent last month from under 10 per cent in December 2010.
The central bank expects the value of the euro to remain stable against the Egyptian pound, which is tied to the US dollar, until the end of the year, he added.
The euro T-bills, which will mature on 27 August 2013, are being offered to local banks and foreign financial institutions.
The government's budget deficit was equivalent to 8.2 per cent of gross domestic product in the financial year that ended on 30 June, and the finance ministry expects it to rise to 12.5 per cent in the current financial year.
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