Egypt’s central bank canceled a three-year treasury bond auction on Monday because bids were too high following an increase in interest rates last week, market participants said.
The central bank had announced an auction for 500 million Egyptian pounds ($73.5 million) worth of the bonds. Bond auctions have been canceled occasionally in the past.
“The rates were high. The yields were 15 percent or more in the bids,” said one dealer, speaking on condition of anonymity. A second market participant gave the same reason.
“The central bank already raised the interest rates … This gave an indication to the market that interest rates will go higher and we have seen yesterday the (T-Bill) rates rose,” the trader said.
In an effort to curb soaring inflation and slow the sliding of the pound the central bank raised interest rates on Thursday after a Monetary Policy Committee Meeting.
The central bank’s Monetary Policy Committee announced 50 basis point increases in both its main rates, taking the overnight deposit rate to 9.75 percent and the overnight lending rate to 10.75 percent.
At an auction on Sunday, the average yield on 91-day treasury bills rose to 12.868 percent from 12.471 percent at the previous auction a week ago.
The central bank offers regular treasury bonds and T-bills on a weekly basis which helps it cover the country’s expenses. Egypt’s budget deficit could swell to 180 billion pounds, or 10 percent of gross domestic product, in the 12 months ending June, the Planning Minister said last month.
“The banks bids that were offered in the auction (today) were higher than the finance ministry’s expectations so they canceled,” the trader added.
Egypt is currently in talks with the International Monetary Fund (IMF) over a $4.8 billion loan to help support its ailing economy where reserves fell to a critical low of $13.5 billion in February. ($1 = 6.7980 Egyptian pounds)