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Al-Ahram Weekly 9 - 15 September 1999 Issue No. 446 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 9 - 15 September 1999 Issue No. 446
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Focus Culture Features Books Special Profile Travel Living Sports People Time Out Chronicles Cartoons Letters Higher yields
By Sherine Abdel-Razek
for investment certificatesThe government last week raised the interest rates on two kinds of investment certificates by 0.5 per cent in a move aimed at enhancing its savings.
The certificates, long-term deposits issued by the National Investment Bank and managed by the National Bank of Egypt, had recently been considered less attractive than other shorter term deposits due to relatively lower yields. Last week's decision boosts the interest rates on these certificates to 10.5 and 11.5 per cent, backdated to October 1998.
The importance of these kinds of savings is that they attract a significant portion of family sector investments, since they are seen as providing secure investments with a fixed yield.
Besides encouraging saving, which currently stands at six per cent of GDP compared to the targeted 25 per cent, the decision will help in solving some money market problems. "It will eventually help in improving liquidity since it will attract more deposits," said Nashaat Abdel-Aziz, managing director of Egyptians Abroad for Portfolio Management.
The decision will increase the appeal of the local currency against the dollar as it will widen the interest rate differential between deposits to about five per cent in favour of the pound. Abdel-Aziz added that this will curb the demand for dollars and thus lift the pressure on the exchange rate.
However, some commentators express fears that the rise might push up other interest rates in the banking sector and negatively impact investment.
Mohamed Maher Ali, chairman of Prime Securities, dismissed such a possibility, pointing out that the rise is a mere 0.5 per cent, and that major institutional investors direct their money elsewhere. Ali pointed out that the nature of these deposits differs from other bank deposits as their interest rates are managed by the government and are dependent on economic developments.
The decision, though, triggered fears regarding its effect on the already-troubled capital market, with some arguing that increasing the interest rate on this safe investment instrument will undermine the appeal of more risky and fluctuating investments.
Abdel-Aziz disagrees. "Investors in investment certificates are totally different from those investing in the capital market: they are seeking a risk-free investment which does not exist in capital market investments."
He conceded, though, that the Egyptian capital market remains unpredictable. The recent hike in inter-bank rates, which in any other market would have caused a similar hike in the rate of treasury bills, did not have the expected result, and treasury bills remained at 8.8 per cent.
Abdel-Aziz believes that the most probable outcome is that the market will not be affected. Moreover, he negates the possibility of investment funds being in any way affected by the increase, given their preference for securities over deposits.
