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Yields dip on Egypt T-bills ahead of central bank meeting Some investors price in an interest rate cut, says trader, despite most economists expecting no change
Average yields fell at a sale of Egyptian treasury bills on Thursday, and a trader said some investors were pricing in a cut in interest rates when the central bank meets later in the day. Most economists do not expect a benchmark rate cut, but some say the Central Bank of Egypt looks more likely to pull a surprise than in previous meetings given a sharp drop in core inflation last month. Concern that lower rates could undermine the local pound currency is the main reason they see rates unchanged. The average yield on LE2.5 billion ($409.50 million) of 182-day bills was 12.801 percent, down from 13.263 per cent at the last auction on 11 October. A sale of 364-day bills worth LE3.5 billion saw an average yield of 13.143 per cent, down from 13.757 per cent at the previous issue. "The only development today is that some traders are pricing in a cut in the CBE's corridor rate in tonight's meeting," said Youssef Kamel, a fixed-income analyst at Rasmala, while adding that he himself thought a rate cut looked unlikely for now. "I believe it is more likely the CBE will leave its key policy rates unchanged until the first meeting in January 2013 or after an agreement with the IMF is reached," he said. Egypt's new government has been discussing a $4.8 billion IMF loan that could help avert a budget and balance of payments crunch until the economy recovers from the political turmoil that followed the overthrow of Hosni Mubarak last year. The next visit to Cairo by IMF officials is scheduled for the end of this month. Kamel said an IMF deal coupled with foreign capital inflows would give the central bank room to loosen monetary policy in the first quarter of 2013. That would bolster growth and counteract planned fiscal austerity. Yields fell across several maturities at auctions of Egyptian government debt this week, even though the amount of debt issued totalled LE12 billion, far greater than the LE3 billion of maturing bills.
